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Avoiding Bad Debt; What to do when it all goes wrong

It is unfortunate, but inevitable that, when you run a business, at some point you will have to deal with late and non-payers. One complication in recovering debts is when our clients come to us with insufficient information about their non-paying customer to establish the customer’s precise identity and/or legal status.

When someone contacts you with an enquiry/order, you should find out exactly who that potential customer is e.g. an individual, a partnership or a limited company.

A further complication is that each of those 3 different types of customer might carry on business under a different trading name. For example, if a potential customer’s name is given to you as “Barry Paul”, you have no ready means of knowing who exactly might be trading under that name.

For example,

  • Barry Paul (a sole trader)
  • Barry Paul (a partnership between a Mr. Barry and a Mr. Paul)
  • Barry Paul Limited, trading as “Barry Paul”

or they could have quite different name, but trading as “Barry Paul”. Unless you know which it is, you could well face difficulty later in knowing whom to sue.

So to avoid this you should note down

  • First name AND surname of the person you are speaking with
  • Is the person a private individual? if not, who are they speaking on behalf of
  • If the person says he/she represents “Barry Paul”, ask exactly whose trading name that is or who the proprietor of that business is, and their exact name and address
  • Do not accept an order until you have acquired the information

You will never have a better chance to get the answers, which can make the difference between getting paid and not getting paid.

As soon as an invoice becomes overdue, action be taken, sometimes all that is needed is a polite letter or a personal telephone call.

If those methods fail, do not delay taking more forceful steps because the longer a debt is outstanding, the more difficult it is to collect. 

A formal letter, stating that the matter will be referred to solicitors if payment is not received within seven days shows that you mean business and frequently will be sufficient to extract payment. If that fails, a formal solicitor’s letter before action, threatening the issue of proceedings, if the overdue account is not settled within 14 days, can work wonders. Our research shows that between 50% and 60% of debtors pay in response to a letter before action.

If such a letter is sent, but fails to produce payment, the next step is to issue court proceedings. The procedure involved is reasonably straightforward and inexpensive.

Rob Winder heads Burnetts’ Debt & Property Recovery team. For further information on debt recovery, contact Rob on 01228 552222.

About the author

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Rob Winder

Senior Associate Rob leads the Debt and Property Recovery team and is head of the Penrith office.

Published: Monday 15th March 2010
Categorised: Debt Recovery, Commercial Dispute Resolution

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