How To Best Manage Your Legal Claims
Sending a letter before action (LBA) is only as effective as the creditor’s willingness to enforce it. The risk is that once debtors know you have no intention to carry out your threat of action, your front line weapon rapidly becomes increasingly ineffective.
You may be reluctant to make a claim due to worries about offending your larger clients because you are fearful of not getting further orders. You shouldn’t be.
If you have tried every other avenue of approach with no success, it is worth remembering that a customer who is no longer paying your invoices is no longer a customer? They are a debtor.
So, What Are The Secrets To Cost Effective Claims?
- Know your client base! You should know your clients better than anyone; after all, you gave them the “loan” when you extended credit. Keep your records up to date on a regular basis. Always keep in mind that situations change quickly and a company which was previously doing well can easily have cash flow problems if a large creditor gets into difficulties.
- Know who the debtor actually is! This may sound a little odd but it’s not unusual for the actual debtor identity to be less than clear. Have you got the right name? Does the documentation support your assumption of who you are dealing with? Check who the debtor is very carefully, as getting it wrong can cause problems further down the line.
- Ensure you have included all the names associated with the business. This is not an issue with a limited company but it can cause problems with a non-incorporated business. If you are issuing a claim against a non-incorporated business ensure you add the names of the owners. This ensures the business itself goes out of business you can pursue the owners themselves.
- Make sure the debtor is still trading. Carry out a credit search – if the company already has unsatisfied county court judgments, there is a strong possibility it will not be unduly bothered by another. If so, it may be worth considering insolvency proceedings as an alternative to the county court route, as long as the debt is not going to be defended.
- Check that you have addressed all known queries or disputes before issuing a claim. The debtor may have spoken to a member of staff in another department or at a regional office about an issue with the service/product. Have you checked with the debtors usual contacts at your business? Sometimes, the customer goes back to the individual who sold them the product if they are unhappy, Check with the sales force in case they have had any feedback.
- Stay rational and detached. It can be tempting to ‘punish’ a client, or act on a personal grievance. Avoid doing this. Irrational thoughts do not usually end in a happy result!
- Get on with it! The old adage “speed is of the essence” is particularly true when recovering money. The longer you leave it, the lesser the chances of a good recovery, hence debt recovery company’s that charge on a “no win – no fee basis” will charge commission based on the age of the debt. The older the debt, the higher the commission.
- Review your terms and conditions and make sure you include a term allowing you to recover your costs if you are forced to take action to recover what you are owed. You can also minimise your exposure to costs by instructing solicitors that operate on a fixed price basis.
None of this advice is rocket science but it is the difference between using the legal system cost effectively and finding yourself out of pocket.
This briefing paper is intended only as an indication of points you could consider and take advice on. You should always take professional advice on any particular situation or the drafting of your terms of business. This note is not legal advice so please don’t treat it as such.