Worth chasing that debt?

It’s a common problem

Many company directors are faced with the problem of customers (both other businesses and individuals) who’ve gone bust owing them money (or simply chosen not to pay their invoices). No matter how well you check them out (credit checks, references, advance payments etc.) there’s always a chance that you’ll be the one left out of pocket. So what should you do if an invoice remains unpaid - is it a case of always pursuing the debtor, even if only as a matter of principle?

Can’t pay

Even though you’re the one owed the money, you’ll have little control over the debt recovery process. After your customer’s business fails, an official receiver (OR) or licensed insolvency practitioner (LIP) will be in touch. Or at least they should be if they’re aware, having gone through the books of the failed company, that you’re owed money (along with the other creditors).

Tip. Once you know that the business has failed, find out who’s dealing with the insolvency. Then make contact to register your interest.

Who does what?

An OR deals with the early stages of liquidation whilst an LIP will be brought in to sell off the assets of the failed business. To make a claim you must complete and return a “proof of debt” form. In due course you’ll be invited to a creditors’ meeting where the LIP will put forward his proposals for the insolvency. Always try to attend and ask questions about when and how much of your money you’re likely to receive.

Just won’t pay

What if your customer simply won’t pay - could it be worth taking a more proactive role?

Accountant. Talk with your accountant. As he should have a good knowledge of your company’s financial health, he’ll be able to advise on whether pursuing the debt makes commercial sense. He can do the sums and estimate what you stand to gain and lose.

Bank. Speak with your bank too. If you’re having problems recovering large sums due to you, they could lead to cash flow problems. Far better to explain this in advance and discuss possible short-term finance options.

Solicitor. Finally, a call to your solicitor should prove fruitful. He’ll be able to check that you’ve considered all the options and advise (based on experience) which route is likely to be the most effective. He’ll also be able to carry out enquiries into the financial state of your creditor to see if they have the money to satisfy any court order.

Hold your fire

Before you start the legal debt recovery machine rolling, be aware that the procedure can take anything from six to 18 months and at the end of this period, there’s still no guarantee that you’ll get all your money back. You have to be prepared to receive nothing at all. Then there’s the cost. If you decide to take action via the courts, it won’t come cheap. Just issuing the paperwork in the county court will cost you £220 (for up to a £5,000 claim) plus you could pay that per hour in solicitors’ fees.