As the credit crunch kicks in, it is increasingly important for businesses to maximise their cashflow. Effective and efficient collection of business debt is therefore becoming more of a priority. Once a debt becomes a problem, and internal credit control procedures have been exhausted, your solicitor can offer a number of strategies to secure payment.

Often it is initially unclear what type of business the debtor is. A business name may relate to a limited company, a partnership or a sole trader. The identity of the debtor is important as a debt can only be enforced against its assets. Equally, credit is sometimes extended to businesses where the creditor has minimal details of the address and trading activities of the debtor.

In other cases, a business may have carefully drafted and helpful terms of trading, but has failed to successfully incorporate these into its contracts with its customers.

All these problems can be addressed by the use of a well drafted and properly administered system of written signed credit accounts. Now is an excellent time to review your credit application procedures to ensure that these sorts of problems occur as little as possible.

If a solicitor’s letter does not prompt quick payment, then a number of options are available to creditors. These range from the enforcement of court judgements against the debtor’s assets to threats of insolvency proceedings. Debts can be secured against property, valuable assets can be seized and sold by bailiffs, salaries can be attached and bank accounts can be accessed. In these situations, information is your best weapon, and it pays to know as much about your debtors as you can.

Make use of the Late Payment of Commercial Debts Regulations. If you haven’t specified a rate of interest on overdue debt, these regulations allow you to recover a very favourable rate (currently 13.5%) on business debt older than 30 days. The regulations also entitle you to charge administration fees ranging from £40 to £100 depending on the amount owed.

Company liquidations are usually the end of the road for debt collection, with trade creditors usually getting little return, and often nothing at all. However in certain limited circumstances, personal liability for certain debts can attach to the company’s directors. Company legislation imposes many duties and burdens on companies and their directors, and where these are breached it is sometime possible to achieve a partial or full recovery of the debt from directors. If in doubt, take legal advice.

As a final plea, do not put off asking your solicitor for help with debt collection. Most firms are happy to carry out this work on a fixed fee basis, putting you firmly in control of the costs of the process.

Joe Burroughes
Associate, Litigation Department of Howes Percival LLP
joe.burroughes@howespercival.com