Change in the Debt Recovery Procedure

With effect from 6 April 2009 the process at the commencement of debt recovery proceedings is to change. Along with some clarity on the content of the letter, where recovery is for a company or business from an individual further required contents are necessary. In particular the letter should advise the individual debtor of the possibility of free advice in respect of the debt.

National Debtline
Tricorn House
51-53 Hagley Road
Edgbaston Birmingham B16 8TP
FREEPHONE 0808 808 4000

Consumer Credit Counselling Service (CCCS)
FREEPHONE 0800 138 1111

Citizens Advice
Check your local Yellow Pages or Thomson local directory for address and telephone numbers

Community Legal
0845 345 4345
Advice (formerly Community Legal Services Direct)

You should allow a reasonable period of time of up to 14 days for the debtor to obtain debt advice. However you need not allow the debtor time to seek debt advice if the claimant knows that

(1) the debtor has already received relevant debt advice and the defendant's circumstances have not significantly changed; or

(2) the debtor has previously asked for time to seek debt advice but has not done so.

Need a Bank Loan to cover book debt?

Are you  considering taking out a bank loan to cover your cash flow crisis due to book debt. Times may have been good and you have been far too busy running your business to worry about collecting that small debt that has been hanging around for sometime.  Besides they’ll get round to paying it, won’t they?  Suddenly times are not so good and if only everyone paid up on time you’d been ok. Using your book debt as security for a bank loan is not so easy now and lots of lending institutions are not interesting in helping you tide over in the bad times.  So the only option may be to be pro-active in collecting those debts.

So what can you do? Here are a few tips to help:-

  1. Know your customers.  It is more difficult for people to delay when you know them and speak to them on a regular basis.  You also get to know those that has a policy of holding of payment until the last possible moment and those that may be in real financial trouble.  You need to make sure that your bill will get paid first and making regular phone calls pressing for payment will push your bill to the top of the pile.
  1. Its never too old.  Unless its over 6 years that is.  Debts up to 6 years old can still and should be actively collected.  Even more so if they are not regular customers.  If you have supplied a “one off” order then you can be much more aggressive in pursuing payment.
  1. If that fails a Solicitors letter should be the next step.  Statistics show that businesses that attempt to collect their own debts are only 70% successful on 90 day invoices and this falls to 50% when a  debt becomes over 6 months old.  In order to get your invoices paid it is necessary to make sure that your debt becomes a priority when payments are being made.
  1. Issuing proceedings in the County Court should always be the last resort but sometimes this is unavoidable and that’s where our experience and help could assist you in keeping your cashflow moving.

If you would like to contact our Litigation Department, please contact us on 01992 558411 or by e-mail.

Rita Wright
25 March 2009

A Recipe for Survival?

It is unclear from the number of sources commenting on the economy what 2009 holds for business. The Government’s official position is that growth will decline in 2009 by 1%. However, some commentators are predicting a decline of more than 3% and a return to growth only well into 2010. In these uncertain times how do businesses with a profitable core operation ensure survival? Cost cutting exercises are being carried out by many to ensure survival. Staff costs are being reduced but this costs money as redundancy payments must funded. Cheaper supply options are considered. From where will this money come? During the boom, the majority of businesses needed to concentrate on customer and contract acquisition and then delivery to those customers. With banks lending in support of growth book debt recovery was down the list of priorities. Now that there is a stiffening of the credit conditions funding for restructuring is difficult, if not impossible, to obtain and then at penalty rates.

The requirement on the banks that have taken the Tax-payer funded bailout is that they must significantly increase the amount of capital/cash on their balance sheets. As a result the appetite for the banks to lend to businesses is severely curtailed.   Decision makers in business are now considering how to restructure the operations to maintain a strong cash-flow position. One certainty is that turnover will continue to reduce for all but a few market sectors. It is certain that in the short- to medium-term trading your way out of the situation, on the same basis is not an option. In the forefront of the decision makers mind is the hope that some competitors will fail. Even though the market will contract further, if a significant number of competitors fail then the share of the market available to the business will be sufficient to guarantee its existence through to the end of the downturn.

A considerable amount of the ‘survival’ money is tied up in debt of which a significant amount may be long-term. As Debt Recovery lawyers we have noticed that the age of debt upon which we are asked to advise is increasing. A small number of businesses have realised that the impact on cash-flow of a robust and rigorous debt recovery process is now a business imperative. By stealing a march on your ‘cash competitors’ you will be taking steps to ensure the business survives. More importantly in your banking relationships greater emphasis is now being placed on your ability to review and analyse the profile of your debtor book. Banks are taking a much greater interest this information for the purposes of assessing the viability of your business.

Strategies and Techniques for Recovery

1.  Credit Control
There is now an industry delivering various techniques for debt recovery or collection without the need in the vast majority of cases for the use of courts. The court procedure adds a cost element to the process of recovery which need not be incurred. Using techniques such as telephone contact, letters and personal attendance recent debts are likely to the recovered in full. At the very least an assessment of the debt profile can be undertaken. Credit control is not a simple recovery procedure in the sense that this is all it seeks to achieve. If only it was that simple. In the current economic climate cash-flow of all of our customers is limited. If Debtors are prudent then they will make payment of their debts strictly in priority to their business needs. An assessment of their liability forecasts will mean that the amount they owe you is down the list of priority. The credit control process enables you to move your debt up that list.Furthermore, it enables you to assess whether the debtor is of sufficient financial standing to maintain an ongoing relationship.

2.  Statutory Demand
Where there is no likelihood of a dispute about the amount outstanding and that sum is more £750. It may be worthwhile serving on the debtor a Statutory Demand. This process is the preliminary step to bankruptcy or liquidation of the debtor. It focuses the mind of the debtor on the payment of your debt above all others due to the potentially catastrophic impact of not dealing with the Demand.Once the time period for the debtors to apply to have the Demand set aside or make payment has expired you have a number of choices as to how to proceed. Formal insolvency proceedings are an option but this means that all creditors will then have equal rights in accordance with the class of debt that they have as against any funds available to pay the creditors. This may mean that you will only recover a small portion of the amount owed to you by the debtor.

Caution should be exercised when using this process. It is critical that a proper and detailed assessment of the circumstances surrounding the debt is carried out before a Demand is served. The Court frown upon creditors using this process where there is or is likely to be a genuine and serious dispute about the claim. Criticism and costs penalties will arise where there is a genuine dispute as to the claim.

If this article and the points it raises are of interest to you please feel free to contact me for a confidential and no-commitment chat.  If you have any specific problems on which you require advice, please do not hesitate to contact us.

Brendan O’Brien
Director and Head of Arrears Management
13 January 2009