5 Pitfalls to Avoid and Minimise the Risk of Not Getting Paid in Business Debt Collection

Updated: May 31

Introduction

Every business has faced the challenge of unpaid debts at some point in its existence. Unpaid debts can be a significant drain on your resources, affecting your cash flow and profitability. Timely recovery of commercial debts is especially necessary for small and medium sized organisations, that may have arrears from larger clients. When it comes to business debt collection, it’s essential to have a clear strategy in place to enforce the debt and minimise the risk of not getting paid, ensuring your businesses financial future. In this article, we’ll explore five common pitfalls to avoid when collecting unpaid debts and offer solutions to help you recover what’s rightfully yours without taking unnecessary risk.

Overcoming Challenges

Lack of Due Diligence and Checks

One of the most significant pitfalls in debt collection is failing to conduct proper due diligence and checks on the debtor. Many businesses make the mistake of assuming that the debtor will fulfil their obligations without question. However, it’s crucial to verify the debtor’s financial situation and creditworthiness before extending credit or entering into agreements.

Without due diligence, you may unknowingly engage with debtors who have a history of defaulting on payments or have insufficient resources to meet their obligations.

Efficiency is key in gathering pertinent information. Cost-effective methods such as simple Google search can uncover preliminary details about the debtor, providing a starting point for further investigation. When delving deeper, debtors, with the help of an expert, can consider conducting various valuable searches, including:

· Checking individuals or business to evaluate if they are insolvent or subject to arrangements such as individual voluntary arrangements, debt relief, bankruptcy restriction orders, or undertakings.

· Examining Bankruptcy and Debt Relief violations of an individual debtor within the last three months.

· Ascertaining if there are attachment of earnings orders against the debtor in the County Court in the event your are suspicious.

· Check in available registers for judgements, orders and fines against an individual or business.

· Companies House searches to examine filing history of a corporate debtors, and company’s status, including any insolvency.

· Checking if corporate debtor has any disqualified officers.

· Search for any published notices.

To optimise this process’s cost-effectiveness, it’s advisable to gather as much information as possible in-house for later use in the process. Before commencing legal action, consider enlisting the services of an experienced lawyer. They can conduct comprehensive debtor due diligence and checks, including making necessary searches.

Business debt collection UK

Inadequate Documentation

Clear and well-documented agreements and terms of business are the backbone of successful debt collection. Failing to maintain proper records of transactions, invoices, signatures on the documents and communications with the debtor can complicate the collection process and weaken your case in legal proceedings.

It is noteworthy that inadequate documentation can lead to disputes over the debt’s validity and hamper your ability to enforce it. Furthermore, this may cause delays in debt enforcement process, and loss of valuable time, that can be avoided with proper systems in place and record keeping.

Business should ensure that all agreements, invoices, and correspondences are well-documented and organised. A skilled attorney can guide you on what documentation is necessary for a strong debt collection case.

Ignoring Communication

Sometimes, businesses make the mistake of cutting off communication with debtors when payments become overdue. This approach can be counterproductive, as it may push debtors further away and make resolution more challenging. Also, sometimes non-payment of debt can be caused by a mistake, disagreement over the proper form of an invoice, payment terms, or other matters than can be swiftly avoided with effective communication.

Ignoring communication can escalate the situation, leading to increased costs, prolonged disputes or even the debtor filing for bankruptcy.

Maintain open lines of communication with the debtor. Professional negotiation and compromise can often lead to mutually beneficial agreements. An experienced lawyer can facilitate these discussions to reach a resolution, when business cannot communicate with the debtor themselves due to emotions, personal issues or disagreements.

Pursuing Unenforceable Debts

In the realm of debt collection, considering the debtor’s ability to fulfil a judgment is of utmost importance. It’s not uncommon for businesses to deliberate whether it’s worth pursuing a debt, especially when dealing with unemployed debtors or struggling companies lacking the necessary assets or funds to settle a claim. Not all debts are collectible, and some debtors may lack the financial means to satisfy their obligations. Pursuing unenforceable debts can be a significant waste of time and resources.

For individual debtors, it’s advisable, depending on the claim’s value, to recommend the services of a private investigator. Such investigators can conduct background checks on the debtor, shedding light on their potential capacity to meet their obligations. For corporate debtors, examining the last available financial accounts at Companies House is a prudent step, even if these records may be somewhat outdated.

It’s essential to understand that obtaining a judgment doesn’t automatically translate to payment. In some instances, writing off a debt may be a more practical choice than pursuing it further, particularly if the debtor’s financial situation is precarious. Chasing unenforceable debts can drain your finances and divert your focus from more promising opportunities.

Conduct a thorough assessment of the debtor’s financial situation before pursuing legal action. If the debtor lacks assets or is not creditworthy, it may be more prudent to explore alternative debt recovery methods, restructure the debt, or write off the debt as a loss.

Delaying Taking Action

Procrastinating on taking action, be it pre-legal, such as communication, reminders, letters before action, taking proactive collection efforts, engaging in negotiations, or taking legal action, such as issuing a claim as a last resort is a common pitfall in debt collection. Businesses may hope that the debtor will eventually pay, but delaying debt recovery action can weaken your position and allow the debtor to dissipate assets.

The impact of delaying action can diminish the value of the debt, or result in uncollectible debts, as the debtor’s financial situation may worsen over time, hindering your ability to get paid.

Business must act promptly when it becomes evident that the debtor is unwilling to pay, and have systems and process in place to deal with debt recovery matters. It is best to consult with a lawyer to assess the best course of action, whether it’s negotiating a settlement, pursuing a court judgment, or exploring alternative dispute resolution methods, such as negotiation or mediation to ensure timely collection of unpaid debts.

Saving your money

Conclusion

In the world of business debt collection, avoiding these five pitfalls is crucial to safeguard your financial stability and ensure you get paid what you are owed, and do it in a timely way. Do not allow unpaid debts to cast a shadow over your endeavours. Instead, take proactive measures to safeguard your assets and financial stability. Partnering with an experienced law firm like Zabulis Legal, who have necessary industry knowledge, and have helped dozens of clients before, can provide the expertise needed to navigate these challenges successfully.

If you are ready to develop a comprehensive business debt recovery strategy, assess the debtor’s ability to pay, and explore the specialised debt collection solutions offered by Zabulis Legal, we cordially invite you to submit or debt claim on our website here: Debt Recovery | Vincentas Zabulis (zabulislegal.com), or book a free 15 minutes “Claim Your Debt” consultation with Vincentas Zabulis. You can book the session here: https://calendly.com/vincentas-zabulis/15min. During this consultation, we will evaluate your unique debt collection situation and discuss the steps we can take to help resolve your business debt collection challenges. Don’t hesitate to reach out and take control of your financial future today.

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