Debt recovery is as much about strategy and understanding your Debtor as it is about understanding the different procedures you can use to recover it.
We have set out below the steps you should consider if someone is refusing to pay for your goods and services:
Step 1 – Identify your debtor
The first issue to look at is simple – who actually owes you the money? Is it a company? Is it an individual? If it is a company, then is there a personal guarentee you can enforce against the Director, or can you only recover against the company?
Step 2 – Identify your entitlement
How you go about recovering your debt depends on what sort of entitlement you have to get paid. Do you have a Contract between you and the debtor which sets out what will happen if they don’t pay you? Is that contract written or oral? Does that contract have recovery clauses or procedures that you need to follow?
If you don’t have a written contract, then recovery can be more difficult and you need to proceed carefully. You need to consider how to best avoid entering into a “he said, she said” argument, and get a bit creative – Do you have emails or text messages from the person which acknowledge the debt? Do you have a good Relationship with the debtor that means they will sign an acknowledgment of debt?
Step 3 – Think about your ultimate end goal before you act
Taking Court Proceedings is common to recover a debt but it doesn’t always result in your debt being paid. After all, a judgment in your favour is only as good as your debtor’s ability to pay it.
Instead, consider the following:
- Why the debtor isn’t paying you. Are they having cash flow problems? Do they have a complaint about your service that can be resolved? Do they simply need more time?
- What is the relationship worth to you? Is it worth keeping it alive? Are they a good client and this is just a small glitch in an otherwise stable business relationship? If the relationship is worth keeping alive, then bankrupting the debtor or winding up the company might not be the best option.
- How could you resolve the issue without going to Court? Maybe a Deed of Settlement is worth considering, or maybe you’re willing to compromise and enter into an instalment plan to keep the business relationship alive.
Once you have answers to the above questions, then you’re ready to take the next step. This might be the preparation of a deed to protect your own interests and avoid litigating a Business dispute in public, or it might be commencing proceedings for recovery.
It is always best to get legal advice before you start proceedings or before you start negotiation with a debtor and to ensure you document everything for your solicitor’s consideration.
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