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It can be soul destroying to have worked hard for a client, or to have handed over whatever goods you are selling, only to have then to chase them for payment.

Certain debtors have an extraordinary capacity to ignore the reminders or to mislead whoever is chasing payment from them – or simply to bury their head in the sand.

This guide is a brief chronological run through the debt recovery process, starting with measures that can be taken to minimise your risk through to actions that can be taken to recover payment from the most difficult debtors. Below is written with businesses in mind, but the principles apply to anyone who is looking to recover a debt.

Obtain Accurate Details

There are many steps that can be taken to minimise your exposure to customers defaulting. A basic, but hugely important, step is to ensure you have the correct details of whoever you are trading with. Is it a company? If so, make sure you get the correct name – it sounds simple but are you dealing with ABC Limited, ABCD Limited or ABC (UK) Limited? If possible, try to record the company number at the start (this never changes, even if the company changes its name).

If you are not dealing with a company, make sure you know the name of the sole trader or one of the partners, not just their trading name.

Getting an address is important too and, even better, if you can capture details such as where they bank then this can greatly help with recovering payment if Court action is ultimately necessary.

Obtaining details like these is easiest at the start of the relationship – it is the natural time to do it, and if there is any difficulty, then it is better that this is established before the relationship gets off the ground rather than after work has been done or goods provided.

Pro Forma Contract

A useful aid is a simple pro forma contract (perhaps with terms and conditions on the back), or a data-capture form to complete at the start. These can quickly get all this information in the system and avoid headaches further down the line once someone has failed to pay – by which stage the debtor will not be giving up any new information readily.

If you have a pro forma contract, you can add a clause saying that the customer will pay all legal expenses incurred in pursuing outstanding bills. This can save you money but also if someone is delaying paying then pointing out they will be responsible for all of your legal costs if you instruct solicitors can prompt them to make payment.

Up Front Payment

Another way to limit exposure is to ask for payment, or part-payment, up front or a payment to account. This aids cash flow, minimises exposure to bad debt and is helpful for the customer too in that they can budget and monitor costs. Of course, in many sectors (e.g. the construction industry) asking for cash up front is a luxury that is unrealistic, particularly if your competitors are not doing so.

How Can The McKinstry Company Help Me Recover Debt?

Where a debtor fails to pay, it’s amazing how often one strongly worded letter from The McKinstry Company will suddenly get the cash flowing. This can be done cost effectively and quickly – all we need to get started is a copy of the outstanding invoice.

Where the debt is a business to business debt we will add on the interest and penalties you can claim under the Late Payment of Commercial Debts legislation. This can result in a little extra in your pocket or can be used as a bargaining chip in return for payment of the outstanding invoice.

In the vast majority of cases, a letter from us will result in payment or at least a payment plan, even where a debtor has been stubbornly digging their heels in or ignoring your letters for months.

Where payment is still not recovered, the next step would be Court action, and again very often service of a Writ or Summons will be enough to make the debtor pay up, and they will also have to pay your Court expenses at this point.

The type of Court procedure used will depend on the size of the debt: Simple Procedure if the debt is under £5,000 and Ordinary Procedure if it is over. In either case, if the action is not defended, you would be granted Decree (the Court Judgement) automatically for the amount you are suing for.

If the action is defended further Court procedure is required. Simple Procedure is designed to be quick and cost-effective, and it can be when the Sheriff is prepared to make a decision at the first hearing. However, the Court expenses you can claim are limited to £500 or less (depending on the amount you are suing for), so it is important to keep this is in mind and try to force a quick payment.

With Ordinary Procedure (for debts over £5k) a defended Court action can be slower moving, so the focus is on pressuring the debtor to pay up early. Recoverable Court expenses are more generous using the Ordinary Procedure.

If you are concerned about the solvency of the debtor, some steps can be taken while the court action is ongoing to try to protect you. For example, you could get an order to freeze money due to them by a third party (and often this interruption to their cash flow will be enough pressure to get them to pay you) or to prevent the sale of property they own while your Court action is ongoing.

It is very rare for a case to go “all the way” and a vast majority will result in early payment.

Where you do end up with a Court Decree, whether the action is undefended or defended, you still then have to get the money out of the debtor. We have strong relationships with Sheriff Officers and private investigators who can help here, and there are a variety of enforcement options available. We can arrest bank accounts (“freeze” them, with you being paid automatically from the account), arrest wages, prevent the sale of property until you are paid off or attach and sell moveable property (e.g. cars) or cash (effective if they are a cash business such as a hairdresser or pub).

The ultimate threat is to sequestrate (bankrupt) the debtor. This is an effective option if you believe they can pay as they will have to pay the full debt plus all of your legal costs within 6 weeks of the date the Court fix for their sequestration hearing. Otherwise, the Court must sequestrate them.

Contact The McKinstry Company Today in Ayrshire & Dumfries and Galloway

The above is a rush through the process. For more detail, please contact Robert Honeyman or Colin Duck, or complete our online contact form. We are happy to advise on steps you can take to minimise your exposure to bad debt, or simply send us a copy of your outstanding invoice(s) and we can get started recovering payment.

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Our team of solicitors and support staff are still here for you. However we have postponed any face to face meetings, restricting communications to telephone, Skype and email. You can contact the Ayr office on 01292 281711 and the Girvan office on 01465 713118