Crux of the crunch: Debt recovery |
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| Finance | |
| Written by Jonathan Liggins, Operations Director for Lovetts Plc | |
| Monday, 09 November 2009 | |
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Eliminating late payment as a concern for SME finances. Jonathan Liggins, Operations Director for Lovetts Plc, one of the UK’s leading debt recovery law firms, sets out a strategy for debt recovery and commercial litigation for SMEs in these hard times. The latest survey from the Forum of Private Business found that 23% of respondents selected late payment and, subsequently, poor cash flow as their ‘key issue’. It’s not surprising really, in tough times, businesses conserve cash by paying suppliers late or not at all. This puts pressure on suppliers who, in turn, put pressure on their suppliers. And the cycle goes on. So what’s the solution for small businesses?Well some debtors just need a push in the direction of their cheque books. This is borne out by the fact that despite the recession, well over 80% of Letters before Action (LBA) issued by Lovetts do not proceed any further. So the real question is how to get the edge over others clamouring for your customers' cash. To keep the cash flowing in as the recession bites harder businesses should consider the following actions: • Bring your collection cycle forward – the sooner you get on top of potential debt problems, the better • If your Terms of Business are silent about interest or entitle you to seek compensation and interest through late payment legislation, threaten it early and apply it on an invoice by invoice basis. • If you have interest provisions in your Terms, consider whether they are sufficiently robust. Businesses with a rate linked to bank base rates are vulnerable here. Scrap the provision and rely on ‘late payment’ but don’t forget to circulate the new terms to your customers! • Instruct debt recovery lawyers early. The cost of a Letter Before Action is tiny compared to the impact it generates - it’s a fact of life that debtors respond to solicitors where they ignore others. • Avoid throwing good money after bad by conducting a credit-check. Be realistic. If the debtor is clearly struggling, negotiate a schedule of payments or even give a discount for immediate payment. • If the decision is to issue a claim, be resolute in pursuing it. If the debtor asks for invoices call his bluff by supplying copies, and any information he wants, quickly. But what of those genuine disputes? Do credit checks and take fixed price advice before you issue a claim. Too many claims have been issued and met with a counterclaim before advice is taken. Result? The creditor is locked into potentially expensive litigation. Nominate a senior person within your organisation who should be responsible for vetting potential litigation. This person needs to assess whether the case is really good value for money. Is there a potential counterclaim? Is there a personality clash driving the dispute. Would a quiet word with someone in the other camp help? How much will the litigation cost? Your lawyers must give you an intelligent estimate - and at least one third will be irrecoverable. Remember, too, that litigation will require management time. So do the sums against the likelihood of success and ask whether it makes sense. Decide what your aim is. An outright win or a quick settlement? A late settlement is the worst possible outcome. The courts pile on the pressure for compromise and penalise intransigent litigants with nasty costs orders. These days there are several ways to get settlement. The Civil Procedure ‘protocols’ are useful, as is mediation. This is a process whereby an outsider is brought in to get the parties talking, understanding each other’s case and encouraging compromise. A mediated settlement may not be 100% satisfying but most get paid and cut down on the management time involved as well as the legal costs. And if all else fails? Nil desperandum. The judge looks forward to meeting you!
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