Although there are circumstances when you will be unable to recover a debt (for example if your customer disappears without trace or simply does not have the means to pay) there are ways to strengthen your position as creditor.
The best time to start is at the beginning of a new trading relationship. Find out everything you can about your customer – this information will be invaluable if they find themselves in financial difficulty.
1. Who are you trading with?
The identity of your customer may not be as obvious as you think. Whilst dealing with an individual, are they trading on their own account? Are they a sole trader? Are they in partnership with others? Or are they a director or employee of a company? Understanding this will dictate who is responsible for payment of debts. If you are dealing (or suspect that you may be dealing) with a limited company then check the central register at Companies House as each company has a unique registration number.
2. Contact information
Obtain all available contact details which should include:
- The full postal address of the business as well as home addresses for sole traders and those in partnership or the registered office address of a limited company
- Telephone and fax numbers relevant to each address
- email or web addresses
Armed with the right contact information you have a better chance to discover early on if your customer is experiencing financial difficulty. Potential losses can be minimized by placing a stop on business and making an arrangement for payment of accrued debt.
3. What is their financial position? Do they have the means to pay you?
There is an inherent risk of bad debt where goods and/or services are provided without prior payment so it is easier to pursue a bad debt if you know who is responsible for payment. In the case of a partnership, not only is each partner liable but also money or assets can be recovered from the partnership itself. This is not the same with a Limited Company as money and assets can only be recovered from the company and not the individual directors unless they have given guarantees.
The more information you have about their financial situation, the easier it will be to recover debt. Obtain their bank details and take copies of any cheques. If they are employed, get the name and address of their employer. Above all, keep this information up to date – a lot of useful information can be divulged to you by your customers unwittingly in the course of their dealings with you. Use this to gain yourself an advantage.
There are a number of ways you can recover your money if things do go wrong. If a debt of £750 or more has accrued and is not in dispute, you can threaten bankruptcy proceedings (against an individual) or winding up proceedings (against a company). Alternatively you can threaten to take them to Court. If you choose the latter, by taking proceedings and securing a Judgment against your customer, the law allows you to take the following steps to recover the debt: seizure and sale of goods; freezing money held in a bank account or shares; deductions from earnings; or a charge against property.
Finally, make sure you have a procedure for chasing for payment and adhere to it. An ad hoc system can and will be used by your customers to their own advantage. As your customers become familiar with your procedures they should pay you within a timescale that you find acceptable.
Good luck!
For the longer version of this article please click here.
For more information or advice please contact Elaine Crowder in the debt recovery team.
