How to get your money back, the process of debt recovery

If you are consistently plagued by late payment from customers, which is leaving you short of cash when it comes to paying your suppliers, then it’s about time you did something about it...

Many companies are worried about using legal or debt collection firms to chase up their unpaid invoices – because it may mean the end of a commercial relationship. But you need to be realistic about it.

If you aren't actually being paid, it's got more to do with exploitation than commercial benefit, and if your customers haven't paid you, they probably owe other people money too.

It's partly a question of cutting your losses. Customers who take umbrage when you pursue legal methods of collecting debts aren't worth the time and effort you'll constantly have to spend chasing the cash they owe you.

If you've given the customer adequate warning (via letter) that the matter will be referred to a solicitor or debt collection firm if it is not settled by a specific date, then the customer cannot claim to be surprised if you do so.

So how does a debt recovery cycle work?

Letter before action

The first step your solicitor or debt recovery firm will take is to write to the debtor and tell him that unless the debt is paid within a stated number of days, court proceedings will be initiated.

This simple letter may be all you need to recover your referred debt, because unscrupulous businesses know that most companies have internal procedures to work through before they bring in external legal support. By referring this debt to a solicitor or debt recovery firm you are showing them you really mean business.

Court proceedings

If payment is still not forthcoming, the next step is to start court proceedings by issuing a claim form at court. You are liable for the costs of this but should be able to recover them from the debtor, if he pays in full, provided you have given him sufficient notice of your intention to take it to court. The letter before action will cover this.

Court proceedings are officially started when the court issues the claim form and sends it by post to the debtor. From that point on the creditor is referred to as the claimant and the debtor as the defendant.

The court will also send the defendant a form for acknowledging that he has received the claim, and forms for admitting or denying the claim. This is called the response pack.

Judgment

If the defendant fails to respond to the claim, then the claimant can obtain a judgment against the debtor. This will take the form of a court order which requires the defendant to make a payment.

The claimant can also apply for a summary judgment if the defendant has objected to the claim but has no real prospect of successfully defending it.

For example, if the defendant argued that the invoice had been paid but the claimant could prove that the cheque had been stopped, a summary judgment would be issued.

To apply for a summary judgment, the claimant's solicitor completes an application form and provides written evidence to support it. A fee must be paid when it is filed with the court. The defendant will have an opportunity to file his own evidence and a court hearing will then take place before an official who will decide whether or not to award the judgment.

This process usually takes between 8 and 12 weeks. The usual procedure for dealing with defended matters can take 6 to 12 months to conclude and can cost a lot more.

When the claimant is awarded judgment against the defendant, the court will normally order that the defendant pays the debt, interests and costs including any court fees the claimant has paid.

County Court Judgment

If a judgment has been obtained in a County Court and the debtor does not meet the requirements of the judgment within 30 days (i.e. pay up), the details of the judgment remain on the Register of County Court Judgments. If a potential supplier requests a credit reference on that debtor in the future, the CCJ will show up. The supplier may therefore decide that the supplier is a bad credit risk and choose not to do business with him.

Enforcement

Awards that are made by the courts are not enforced automatically. But there are number of processes which are designed to secure payment.

If you are lacking information on the debtor, you can obtain a Court Order which requires the debtor to attend court and answer questions about his liabilities, assets income and expenditure. This is called an oral examination and enables the creditor to decide which of the various methods of enforcement he will use.

If you discover that your debtor has assets, then you can use a bailiff or sheriff to seize goods and sell them at auction to pay the debt. A business' assets are goods used in that business. If the debtor owns land or buildings then the court can impose a charge on the debtor's property to secure payment of the due amount.

If the debtor is an individual in permanent employment, the court can order his employer to make periodic deductions from the debtor's earnings and pay them into court so they are available to creditors.

If the debtor is owed money then a court order can be obtained which requires that the person or company that owes money to the debtor to pay the money directly to you. This will not only include trade debtors but also companies such as banks and building societies who are holding money for him. Obtaining customers' bank details when they first apply for credit, really pays off in this situation.