Blood from a stone
Article Date: Nov 08 2006Apart from situations when the occasional bloody-minded customer seems unwilling to pay their bills, a collection agency is also advisable if you are dealing across borders. There may be many cultural differences as well as the obvious difficulties of language barriers. Another instance where it might make sense is if you have a large number of customers who represent a small value of debt.
Lots of work for less reward means it makes sense to use a debt collection agency. Although they may have a mixed reputation, figures from trade body the Credit Services Association (CSA) indicate that its members recover up to £5 billion each year. Fees charged by debt collection agencies vary, around ten per cent of the amount recovered being common – and some agencies offer flat rates. Make sure you’re using a reputable firm, registered with the CSA.
Last resorts
If you’ve exhausted all means of reaching a settlement and are stuck in a dispute with your customer, it may be time to take recourse to your solicitor or the small claims court. The courts are gridlocked with commercial disputes as more and more people take this option, but there's time and money involved. If you’ve got a debt, the likelihood of a trade supplier being paid in an insolvency situation is remote. Court should certainly be a last-ditch option.
Unsurprisingly, Clarke Wilmott’s Dunlop advises contacting a solicitor to see if it’s worthwhile making a claim. ‘It depends if it’s cost-effective for you not to – maybe your customer won’t be able to pay up. An effective tool to put pressure on an obstinate debtor can be a solicitor’s letter. Just having a solicitor’s letterhead can make a difference.’
The next stage, if neither contacting the company nor a solicitor’s letter has had any effect, should be a county court claim. ‘The point of small claims is that people can do it themselves rather than use a solicitor, but medium-sized business generally want to employ professionals,’ says Dunlop. ‘Using a solicitor is usually better than having time away from your daily work.
’I’d say 80 to 90 per cent of debt recovery goes through the courts. Once a judgment is obtained, the difficult bit is getting the money. Usually a warrant is issued or you can take a third party debt order, where you get money that is owed to the debtor. Otherwise bailiffs can arrange installments, can force entry to business premises and can take goods to the value of the debt.’
A full version of this article can be found on Business XL
