Debt Recovery During a Recession: Considerations for Business

by Commercial Blawg on February 14, 2013

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Guest post from business lawyers regarding recovery debt during a recession.

It will come as no surprise that debt recovery has become a bigger consideration for businesses during the recession. At times where businesses are cutting costs in an effort to increase turnover and manage cash flow, debt recovery has become a big part of the day to day running of a business as customers struggle to pay their bills. The situation is not helped by increased costs, lack of pay rises, rising unemployment and crippling debts such as mortgages and student loans.

Considerations

Strategic debt recovery is essential: the last thing a creditor wants to do is throw good money at bad money by spending fortunes on legal and enforcement costs to chase debts that debtors cannot actually afford to pay.

Who to claim against?

The first thing any business needs to do before issuing legal proceedings is to check who they will be bringing their claim against. This may sound obvious but it is not unheard of for a business to sue a related company, a holding company, a struck of or dissolved company or a company with a similar trading name rather than the actual debtor. This could result in the wrong debtor being awarded its legal costs by the court for the expense of having to defend legal proceedings. In the case of incorporated bodies this basic information can easily be checked at Companies House.

Company Accounts

This should then be followed by obtaining copies of the company’s filed accounts as these will show whether the company actually has money or assets which can be used to pay the debt (although bear in mind that a company’s financial position may have changed since the filing of its accounts).

Equally so with individuals, searches can be made at the land registry to find out whether individuals still reside at the address  the business has on file and more importantly whether they own that property as this may be an asset that can be liquidated. Enquiries can also be made with the insolvency service to check whether individuals have not already been declared bankrupt.

The most pragmatic solution for any business is to consider less sever methods of debt recovery, such as agreeing payment plans with debtors, particularly where businesses are struggling to attract customers as this type of goodwill is likely to result in maintaining important relationships resulting in repeat customers who will remain loyal even after the recession. Businesses should be aware that recovery methods such as mediation, where debts are disputed, should not be underestimated as it could save both parties substantial legal costs by unnecessarily getting involved in expensive legal disputes.

Debt Recovery Experts

If you would like further information on the debt recovery considerations for a business during a recession (including recovering interest on outstanding debts) then you should speak to a commercial law firm like OracleLaw whose business lawyers will be able to assist you with developing effective strategies.

Commercial Blawg

Commercial Blawg

Business law blogger at CommercialBlawg
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