Debt recovery in the current climate

Karl WilsonThe current recession has made it increasingly difficult for companies to recover money they are owed and with cash flow being the lifeline of any business, many are finding it difficult to resolve matters in order to survive. But there are things businesses can do to maintain cashflow and avoid customers’ delay in paying.

The key to avoid such problems is to make sure you do your homework before entering into business with a new customer.

There are many common errors made; firstly businesses and companies don’t get to know a prospective customer.

It is essential to do background checks on people and companies you propose entering into business with and use tools such as company searches, bankruptcy searches and trade references.

Secondly, get the paperwork right! Problems and disputes arise easily when things are not confirmed in writing.

Many disputes can be avoided if all aspects of an agreement about the supply of your goods or services are made clear, including your terms for payment.

To avoid uncertainty, get a written contract drawn up to confirm your terms of business. In the absence of a contract, provide e-mail confirmation of what’s been agreed with the customer.

Get your invoices delivered promptly and delivery notes presented to customers should always be signed for by an authorised officer of your customer’s business, specifying exactly what has been delivered. Furthermore, consider personal guarantees from directors of any limited liability company you supply to, should that company you propose dealing with become insolvent and is then unable to pay you.

A ‘retention of title’ clause can be included in your contract to enable you to retain ownership of goods you deliver, until such time as your customer pays for them.

The Late Payment of Commercial Debts “Interest” Act 1998 also allows interest to be claimed on debts outstanding beyond your payment terms. This statutory right to interest in business dealings can be highlighted in your terms and conditions.

The current economy results in cash moving around between businesses more slowly which has a knock on effect in increasing debt. As the economy improves and we start to move away from the credit crunch, hopefully lending will become more abundant, investors’ confidence will grow and this will inject cash into the economy to generate a more rapid movement of money.

Karl Wilson, dispute resolution specialist, Marsden Rawsthorn LLP.