In our day to day life we are subjected to making exchanges which can be in any form based on the terms of arrangement between the two parties which often lead to debts from one of the party to another and when he/she doesn’t repays it on time or refuses to repay back for one or more reasons we move on to the steps of debts recovering which are so numerous and the route one takes depends on the amount owed to him/her and his/her ability to prove the fact he/she is owed the money and so we shall discuss some of these routes in detail as we scroll down.
A key consideration for a person owed money in choosing a route of collecting it back is checking on how that route is effective for the overall debt recovery.
Contractual considerations: The primary aim should be protecting self and company or belongings from those going into financial problems or insolvent by starting and basing strict terms of trade on which to function, below are ways of protecting self and belongings in case the arise of a debt or any problem you shall deal with it as a child’s play;
1 One of the greatest mistakes and start of failure is relying on oral contracts, so you should assure the terms on which you grant out services and goods are written down and signed by the customer as a written contract.
2 Make sure any changes in the contract policies are written down carefully and signed by the customer in this way self and belongings are protected.
3 Make sure one undergoes a due diligence on the person you are planning to do business with for he/she might be reputed with a history of a bad debt, this check-up can be carried out in the register of judgements established and maintained by the chief register or could be checked online at trust online if ones country possess this online website for such checks.
4 It is of primary importance terminating the contract when one of the partners is in financial difficulties for it stands the risk of losing money and shall have difficulties in settling you if it finally goes insolvent.
5 Including retention of title clause in one’s contracts can be of good use since it prevents goods passing unto a buyer until he has completely paid for them, it is difficult incorporating this in business but if one should succeed then he/she will not have to regret even if the trading partner goes solvent one shall not be affected.
6 More clause: -One must remember to write down a specific date of payment of any debt signed by the customer.
To encourage prompt payment it is advisable to include interest on late debt payments or a discount for early payments and if an agreement on instalment pay is reached and one of it is paid late the entire price becomes due.
Business debt recovery
So many businesses now our days experience some problems getting paid on time by their trading partners, however there are lots of occasions where a customer cannot or will not pay. So one is moved voluntary or involuntary to use the third party or legal action to recover the money he/she is owed so as to avoid a bad debt. Let’s briefly go through the different steps.
- Is the debt worth a fight?
There exist absolutely no hard and fast rules about which approach to take or whether to pursue a debt.
1.1 The amount of money you are owed?
- In terms of money amount and time, it is advisable to write off very small sums, nonetheless the small claim tracks all offer cheap routes without the need for solicitors.
1.2 Who your customer is?
- Each and every business owner should be diplomatic in his/her approach if it concerns a customer whose business is of great value.
- But if it’s none of customer then one can even be more assertive.
1.3 A reason why the customer has refused paying?
- Exist any dispute over the good? If it is the case then resolve as fast as possible the dispute otherwise it shall be very difficult recovering the debt.
- The customer, is he/she in cash flow difficulties? If so then see on how to negotiate payment on account and rescheduling the remainder which is confirmed in writing.
- Is there any other outstanding judgement against the customer? If it is the case then the debt might well be irrecoverable. So have a check in the register of country court judgements.
- Is the customer experiencing bankruptcy or in liquidation? If such is the case then the debt might be as well irrecoverable.
- But in the case were the customer has no reason for not paying, in other words refusing to pay the debt, then use a debt collection agency as well as a solicitor specialised in debt recovery or go to court or serve a statutory demand which are discussed below.
- Debt collectors
All over the world we have debt collection agencies and solicitors which are all specialised in debt collection all having the necessary time, expertise and all resources needed for the job.
2.1 When one uses a reputable debt collection agency or a specialist solicitor debt recovery he/she would find it’s a fast method for collecting debts.
- The customer would often pay straight away, either in instalments or in full at once.
2.2 Cases of using an agency is often sensible when one wants to keep the customer.
- One is obviously unlikely to keep a customer who has been pursued through the court.
2.3 Normally costs are calculated as a percentage of the amount of money recovered.
- Commission on the money recovered is classically 8 to 10% for commercial debts, which can vary depending on the size and age of the debt.
Legal debt collection
Preliminary considerations:It is advisable that before taking any court action you must have tried all informal ways of obtaining the outstanding debts, speak to the person who owes you the money as you might find an informal way of repayment without having to pursue him/her to court.
If personal effort of speaking to the person brings no positive arrangement on settling the debts you should write a letter with the following main information; amount of debt, reason for the existence of the debt and finally what you have done as personal effort on recovering what is owed to you using informal methods.
Once the letter has been written, consider delivering it by yourself or through a recorded/signed service to ensure you have a receipt as proof of you call unto formal debt recovery, for it might flag that the debtor did moved thereby frustrating debt recovery, in case you are unable to locate the debtor might be he/she has moved or because of one or more reasons, if the debt he/she owes you can justifier the expenses in his/her search you should consider engaging the services of an enquiry agent to assist you locate the debtor if they can.
It is worth considering and bearing in mind that in respect of most debts when court proceedings are not issued within the period of 6years from the day the debt fell due court action, the debt shall be classified “statute-barred” thereby denying you the opportunity of enforcing the debt recovery through court action.
The full provision on getting the debtor pay back his debts could be your names and that of the person who owes you money, all copies of dated works relating to the debt you are claiming, a date on which you agreed with the debtor to receive your money which should be at least from 7 days upward, an outstanding account statement copy, an account detail of the steps you proposed to undertake if you are not paid on time and finally any resolution of contractual terms of interest or discount previously planned.
Court proceedings: There exist so many points one is to consider before taking on any court proceeding:
- Make sure a cost/benefit has been conducted and shows positive before starting any court proceedings, let issuing a claim be one’s last option for the court would expect one to have acted reasonably, for must have exchanged information and documentation about the dispute and generally avoiding the need for issuing a claim. Never forget there is little or no satisfaction in winning a case when the defendant has no money to pay for his/her debt. Of primary importance before issuing a claim is to be sure the person, company or firm you are claiming from would likely pay you if you win the case otherwise if they are:
- Possess no money of their own;
- Having nothing of value belonging to then or personal property;
- Have stopped trading;
- Have other debts to pay;
The court might eventually not help one to collect his/her money and in this way one shall just spend more money in vain.
- Of great importance to bear in mind is the fact each and every one should be cautious about starting a court proceeding if he/she does not intend to see it through.
- Your opponents may not take you serious.
- One will certainly be liable for his/her opponents costs if he/she discontinuous the proceedings.
- Each and every one’s ability to recover a debt depends on the amount of the debt and court procedure he/she claims is located.
Global Debt Recovery
Global debt recovery is never the same since its complexities depend on so many factors including one’s relationship with its client. Even though there exist a country specific legal backdrop for collecting dues. Collection can be summarised in three steps which would be briefly explained in a fruitful way as we scroll down;
First step: Amicable pre-legal negotiation
It might be difficult negotiating to obtain payment, costly, frustrating and time consuming but it remains an essential phase when collecting global debts, more to that negotiation might be the best way to preserve existing business relationships since discussing issues and finding compromises is an efficient alternative to continuous routes. It is true negotiation is a demanding exercise in terms of time and money but will always remain less costly than commencing a legal proceeding which obviously is very complex.
Second step: Legal action
Often pre-legal action might also become a frustrating exercise since compromises might lead to debt instalments and even up to a debt write-off, if negotiations offer little constrain to the debtor to pay, and when the amicable approach lead to a dead end, comes legal action as the next step. First assessing whether or not the debtor company is still in active, assessing whether it is solvent is a necessary prerequisite prior to commencing any litigation proceedings which are running a risk of lasting for years without any results being guaranteed.
Third step: Insolvency
The longer the proceedings are the greater than chances of realising that the debtor has not paid other debts and greater the chances of realising that it has actually become insolvent too, as a result these worst case scenarios lots of mechanisms have been put In place to deal with insolvent companies, even though each type of proceeding has its own purpose for being for example rescuing viable companies, liquidating others so as to realise the debts through the sale of the company’s assets. In practice all companies reaching the insolvency stage rarely survive, to go further the recovery rate in insolvency cases is usually very low.
Insolvency proceedings: Our main aim is not to use insolvency proceedings to recover debts but in some cases the threats of insolvency proceedings might be sufficiently enough to persuade some debtors pay back their debts as well as it can also provoke debtors to set out reasons for not paying their debts, we can conclude the insolvency proceeding is like a sword of two edges which can wound both the enemy and the user so before using this proceedings consider the fact that if the debtor is put into a formal insolvency proceeding you might finish by getting only a little or nothing as your debt recovery.
As a result of the inconveniences often encountered during debt recovery it is advisable to follow the above steps on protecting personal property and keeping up to date written and signed documents containing the debtor’s declaration on when to pay back.