Bad Debt Recovery

Need of Bad Debt Recovery Process

Many companies are worried about using legal or debt collection firms to chase up their unpaid invoices. They are worried that it will end a commercial relationship. You need to be realistic about this. If you aren't actually being paid it's got more to do with exploitation than commercial benefit.

In addition, if they haven't paid you the chances are they owe other people money too While you let the debt drift other, more active creditors will be getting priority treatment. And if the company is in terminal trouble, the chances of the pot being emptied before you get your share are high.

It's partly a question of cutting your loses. Customers who take umbrage when you pursue legal methods of collecting debts aren't worth the time and effort you'll constantly have to spend chasing the cash they owe you.

Also, if you've given the customer adequate warning via the letter cycle that the matter will be referred to a solicitor or debt collection firm if it is not settled by a specific date, then the customer cannot claim to be surprised if you do so.

How Bad Debt Recovery cycle work?

Letter before action

The first step your solicitor or Bad Debt Recovery firm will take is to write to the debtor and tell him that unless the debt is paid within a stated number of days, court proceedings will be initiated.

According to legal firm LRC this simple letter is usually effective in recovering about half of all the referred debts. This is because unscrupu lous businesses know that firms have internal procedures to work through before bring in external legal support. They will use you as a cheap line of credit until that happens.

Court proceedings

If payment is still not forthcoming, the next step is to start court proceedings by issuing a claim form at court. You are liable for the costs of this but should be able to recover them from the debtor, if he pays in full, provided you have given him sufficient notice of your intention to take it to court. The letter before action will cover this.

Court proceedings are officially started when the court issues the claim form and sends it by post to the debtor. From that point on the creditor is referred to as the claimant and the debtor as the defendant. The court will also send the defendant a form for acknowledging that he has received the claim and forms for admitting or denying the claim. This is called the response pack.

The claim form must contain a statement of truth signed by either the claimant or his solicitor stating that all the facts the claim contains are true.

Judgement

If the defendant fails to respond to the claim, then the claimant can obtain a judgment against the debtor. This will take the form of a court order which requires the defendant to make a payment.

The claimant can also apply for a summary judgment if the defendant has defended the claim but the defendant has no real prospect of successfully defending it.

Enforcement of Bad Debt Recovery judgement

Awards that are made by the courts are not enforced automatically. But there are number of processes which are designed to secure payment.

If you are lacking information on the debtor, you can obtain a Court Order which requires the debtor to attend court and answer questions about his liabilities, assets income and expenditure. This is called an oral examination and enables the creditor to decide which of the various methods of enforcement he will use.

If you discover that your debtor has assets then you can use a bailiff or sheriff to seize goods and sell them at auction to pay the debt. A business' assets are goods used in that buiness. If your debtor is person then he or she may have personal property such as a car.

If the debtor owns land or buildings then the court can impose a charge on the debtor's property to secure payment of the due amount.

If the debtor is an individual in permanent employment, the court can order his employer to make periodic deductions from the debtor's earnings and pay them into court so they are available to creditors.

If the debtor is owed money then a court order can be obtained which requires that the person or company that owes money to the debtor to pay the money directly to you. This will not only include trade debtors but also companies such as banks and building societies who are holding money for him. Obtaining customers' bank details when they first apply for credit, really pays off in this situation.