What is the best approach if your debtors cannot pay what they owe you? The short answer: honestly, ‘it depends’. Countless businesses are facing legitimate difficulties through no fault of their own. Yours may be one of them, not just because it has shut its doors or lost business due to social distancing, but because debtors have gone to ground.
The problem is, without meaning to sound flippant, it’s contagious. It spreads from one business to another, and so on. Every business’ problem can become a problem for another business.
But Is a Heavy Hand or a Light Touch Best to Deal with Debtors?
If a debtor was unable or unwilling to pay you prior to the current climate, you may feel that your chances of getting paid have now truly gone up in smoke. You may even feel that they are using the pandemic as an excuse and there’s a chance you’re partially right.
Even those ever-desirable customers/debtors who have historically satisfied every invoice without delay might now be feeling the strain.
The one thing you can do is get in front of the problem; knowing your options is important. If you get advice about what options are open to you, you can then balance these up and decide on the best approach.
What Are Your Options?
- Take a tough approach and start formal recovery steps immediately
This could put you ahead of other creditors in the (hypothetical) queue. It could get you an early result.
- Take a softer approach
This approach might benefit you if you have a strong commercial relationship with the debtor and some confidence in the relevant market such that recovery is likely to be achievable in the medium or long-term. If the debtor truly just needs extra time to pay, a robust but reasonable compromise may be reached.
- Somewhere in between? If so, where?
Each case must be considered on its facts. You may want to demonstrate compassion but, at the same time, exert sufficient pressure to ensure your debtors know you are treating matters seriously and the debt must be paid, albeit potentially with a short agreement due to operational difficulties, for example.
Where the balance lies depends on various factors, including the sums of money involved, the history between the parties, the personality of the individuals involved, and the nature and extent of any likely future reliance upon one another.
Specific Steps You Can Take
You may want to evaluate the creditworthiness of the debtor with a view to determining if the default is a delay tactic or a genuine financial issue caused by the COVID-19 pandemic. We can assist with this by using experts and online resources.
Once you have investigated and considered information about creditworthiness, you will be in a better position to assess which approach is likely to be best.
You may want to send a Letter Before Action (before or after assessing creditworthiness). If so, please read our recent article by Jodie Sumner, which can be found by clicking here.
If the debt is owed by an individual (or sole trader) you could shorten the lifespan of the debt by sending the debtor an acknowledgement of debt Reply Form.
If you are very concerned about the future viability of your business or that of your debtors, you will want to act as quickly as possible. It should be noted that the courts are not running at full steam at present. Claims can be started as before, but they are probably going to take longer to get to court. However, if you issue a claim and the debtor does not defend/oppose it, you could obtain default judgment. Bailiffs can still serve documents but unfortunately the enforcement stage of proceedings may also be delayed because of the decrease in court activity.
If/when you secure a judgment, there are methods of enforcement which are less likely to be impacted by COVID-19, such as applications for charging orders. The recommended route will depend on the facts of the case but, again, we can assist you with what to do, when and how.
We are working harder than ever to ensure that our clients continue to receive the first-rate service they have come to expect from us. If you would like further information or guidance, please contact our Dispute Resolution team on 0161 475 7676 or email [email protected].