It is not uncommon for a business to encounter unpaid debts from customers. Whether your business produces goods or services, there will likely be a circumstance in which you delivered a product and for some reason a customer is unable or unwilling to pay. There are a few things that you should consider before taking legal action, or before hiring a solicitor. As well, there are steps to take before rendering goods or services that may protect you in the event that a customer does not pay.
When is debt worth pursuing?
It is up to you to decide what debts are important to follow, but debt recovery is also about the likelihood of recovering the money owed. It may not always be worth the time and expense to chase some debts, especially if they are relatively small. Of course, if the customer is someone that you regularly do business with, it may be worth it to chase a small debt, so as not to set a precedent. If you do intend to continue working with a customer, it is important to be professional, thorough, and not overly aggressive when trying to retrieve money owed.
Some debts may be unretrievable because of the customer’s circumstances. They may already have other outstanding debts that have been recorded through courts, or they may have filed a Debt Relief Order which claims that the customer’s total assets are not worth more than £300, excluding their vehicle, as long as it is worth less than £1,000. As well this claims that the customer does not make more than £50 a month. In these circumstances there is little chance that a debt will be recovered, and it is not recommended to spend the time and money trying to retrieve it.
What can be done before hiring a solicitor?
Before hiring a solicitor, it is recommended that you find out why the debt is not being repaid. If there is a circumstance preventing the customer paying in full, suggest partial payment or a payment plan.
Reaching out to the customer ahead of time is always a good first step. Sometimes businesses will choose to have a debt collection agency take the burden of following payment. This is especially recommended if you have a lot of outstanding debts, and your goods or services are not being disputed by a customer. Most collection agencies will not handle disputed debts.
Why hire a solicitor?
Solicitors are especially recommended when there is a debt that is disputed. Solicitors can help you know what your rights are as a business and help come up with a plan of action that resolves debts amicably.
Even if you hire a solicitor, it isn’t always necessary to go to court. In fact, it is usually best to try and solve debts outside of court. A solicitor can help correspond with the customer, outlining the responsibility and obligations of a transaction. Often times, this is enough to resolve disputes.
Things to do to protect yourself
Especially in the event of disputed debts, it is crucial to have some form of proof outlining a transaction. It is best to have terms and conditions as well, in the event there is a disagreement. If you are a company rendering goods, it may be advised to have some documentation of title, or deed, that the company keeps until full payment to ensure that if the goods cannot be paid off, the debts will be more easily recovered. For services, documentation of services, and contracts are advised.
If you have arranged partial payment, or a payment plan with a customer, it is a good idea to get the terms of this arrangement in writing, especially if you intend to charge interest for the time it takes to pay the debt.
To maintain customer relationships, sometimes a solicitor or third party can come in to give a polite nudge to customers. Know your customer’s circumstance and follow up when it is worth the time and money. Offer compromises to come to a solution when possible.
Ultimately, if you need legal guidance when debts have become out of hand, or there is no compromise, consult a solicitor.