In the course of business, many of us strive to build up strong relationships with valuable customers. By valuable, we mean those customers who provide repeat business and consistently make payment on time and in full. In an ideal world, all customers would be this perfect. However, and without intending to be the bearer of bad news, the harsh reality is that not all customers are.
Unfortunately, most businesses out there will have experienced a customer who refuses to pay, despite having received a high quality service or product provided in accordance with the contract. The customer will continue to feed you excuse after excuse as to why they are not in a position to pay and it can often be an endless tale of cat and mouse which ultimately results in wasted time and wasted money. So….how can you put yourself in the best position to deal with these situations?
Fortunately, there are a number of preventative measures you can take prior to entering into the contract which can seek to put you in a better position in the event of a dispute. Most importantly, all businesses should check to make sure they have a thorough set of standard terms and conditions in place. Terms and Conditions (Ts and Cs) can be drafted to afford adequate protection in the event the customer neglects to pay on time. A retention of title clause can also be inserted which gives you certain rights to recover any goods provided which are not paid for. Prior to entering into the contract, it may also be sensible to consider whether to ask directors or owners to enter into a personal guarantee. The benefit of a personal guarantee is that it allows you to pursue the individual in the event the business is dissolved or no longer trading.
If you already have adequate Ts and Cs in place, and the customer still defaults, it is important to make sure your credit control procedures are in check. It is useful to keep a tight diary when chasing customers and to make a record of any relevant conversations. At the point of default you should also assess whether you are entitled to suspend any further performance. It is imperative to avoid falling into the common trap of believing that if you continue supplying the customer you will eventually receive payment. This can often be misguided and could in fact worsen the position by increasing the debt.
If you are unsure of your rights when dealing with a defaulting customer, the best course of action would be to take legal advice to assess your options going forward. Provided you have adequate rights in your Ts and Cs, the contract could potentially be terminated and formal attempts can be made to recover the debt. Due to the recent introduction of the Pre-Action Protocol for Debt Claims, businesses now have to send a letter of claim to individuals or sole traders giving a period of 30 days to respond before issuing court proceedings. However, in the event the matter cannot be resolved, County Court proceedings can then be instigated to obtain a judgment against any bad debtors.
Once a CCJ has been obtained, various methods of enforcement can then be used to recover the outstanding invoice as well as any additional fixed costs, compensation and interest. The most common enforcement method is to instruct High Court Enforcement Officers or County Court Bailiffs to recover the debt by attending on the debtor’s premises. Other enforcement methods involve obtaining a third party debt order against a bank account, obtaining a charging order against property or instigating bankruptcy/insolvency proceedings.
If you need to discuss debt recovery issues, please contact Michael Sproates on 01642 873764 or email msproates@jacksons.com.
