Practical Advice for Creditors

The debt recovery process can, so easily, become protracted in such a way as to remove the very idea that a process is at work.

Creditors should drive the process towards the desired outcome. 

In the same way as any journey can be made more bearable and less stressful by engaging in certain behaviours before you set out- the correct approach before embarking on a debt collection strategy can prove invaluable. When we say invaluable- we mean that you will save time and/or money.

Good paperwork is good business

Creditors should always try and mitigate the possibility of the Debtor raising an application to set aside a Demand. Processes that require the Debtor to ‘sign off’ orders, deliveries and invoices go some way to mitigate this.

Creditors should consider having processes that complement good record keeping. 

Debtor Diligence can save a lot of time and money

We’ve seen many Creditors go to the trouble of serving Demands on former customers, only to realise that all of the address details they held for the Debtor were incorrect. This is a fairly common occurrence, we observe, where the Creditor has a dedicated sales team whose process regarding customer on boarding is not widely understood throughout the Creditors’ business.

Whilst this may have been done already, it’s a useful time to validate the contact information. Go on the Debtors’ website (if there is one) and check the details. If the Debtor is a private individual, a public database check, should assist in validating the contact details.

For an extra level of validation, a means report could be commissioned to provide an asset picture as well as confirmation that the Debtor has been receiving your previous requests for payment.

Charge Interest and claim debt recovery costs

Interest and Debt Recovery costs can be claimed, even if the Creditors’ terms don’t make any mention of them.

At the very least, the extra amount can be used as leverage and negotiated upon with a Debtor. Many Creditors will remove these charges completely in consideration for full payment of the original contract debt.

Care should be taken as to how these are accounted for. These charges are essentially being treated as an income stream if they are paid. Practically, it is best to raise a receipted invoice for these charges and fees, after they are paid by the Debtor as this will provide a reliable audit trail for both parties.

Be clear about what you want and what you have

A Process Server can provide useful intelligence, over and above whether the Debtor was present when they visited. A site visit can give clues as to the Debtors’ general asset position, which could be valuable when deciding to take the insolvency process further.

If you are hoping for the Debtor to contact you and make a repayment proposal, then information which could affect this should be requested. Is the Debtors’ property being advertised for sale? How old are the vehicles on the Debtors’ driveway? These are questions that a Process Server will be able to answer without doing anything too onerous.

A photograph of the Property taken by the Process Server can sometimes prove useful as a reference if the matter develops. It also assists if, for some reason, you want to instruct a different Process Server on the file in the future.

Any information from the Creditors’ file regarding contact with the Debtor is, potentially, very useful for the Process Server. It allows the Process Server to make an assessment of whether the Debtor is likely to be evasive on the doorstep or conduct themselves in such a way as to avoid service before any attendance is made.

Look at the commercial reality

Serving a Demand on a Debtor is pretty final. You are unlikely to receive another order from them ever again. They will, even if the matter is paid, likely place their business elsewhere and they will probably tell their friends about the fact that you were prepared to bankrupt them.

Creditors often take the view that a customer who doesn’t pay is not a customer they want on their ledger. Whilst valid, the commercial reality is sometimes a bit murkier.

It is worth considering the loss of future trade incurred by closing the relationship. This is even more important where the Debtor is well known in the industry.

We’ve seen a case where the Debtor was so well known in the industry that a Statutory Demand for £5,000 led to an evaporation of the Creditors’ order book in several months. The Debtor in question happened to be a supplier of key components to the Creditors major supplier and the CEO was president of a national trade body. We weren’t instructed on the serving that Stat Demand by the way. We were instructed by the Creditor Company liquidators!

Creditors should consider, especially for relatively low balances, instructing a process server simply to attend and deliver a hand written letter setting out the position- and requiring contact to discuss the amount due.

Sometimes a letter with a conciliatory tone delivered by hand from a third party is enough for the Debtor to take things seriously. Don’t just use a standard debt collection letter from your accounting system – make it personal.

Be selective

Statutory Demands carry big consequences. Even the largest Creditor, with the most dominant of market positions, should be wary of using them as a standard process.

Essentially, in standardising their use you introduce a consistent cost (the cost of the process server) into each Debtor entry on your ledger. If the ledger is large enough, you start to see a lot of cash being utilised by the Credit Control team. Worse still, it also artificially inflates the exposure at the wrong end of your portfolio!

The best use of Statutory Demands comes from being able to selectively deploy them on cases that genuinely need something a bit extra to inspire payment.

Case Study 

We’d been instructed to assist a partner that was going through a period of change in their Credit Control department. The partner was a supplier of building materials to the trade. The previous Credit Manager had been a huge advocate of Statutory Demands, to the point where their Credit Policy did not consider collection by any other means. Certainly, the team boasted an enviable cash collected position but, over the course of 18 months, they ran out of people to chase.

When the matter was finally tackled by the Finance Director, it was discovered that a significant portion of business had been lost as a result of overzealous Credit Control. Their clients, many of whom had been using them for over 20 years, had placed their trade with other suppliers. Unfortunately, this was well known in the Sales team but, for reasons which were completely unfathomable, this information was never circulated and, accordingly, it was never actioned.

The moral of the story here was that, there was clearly a need for Statutory Demands to be used on a proportion of the Debtor book, but not everyone.


Don’t be afraid of the repayment plan

Creditors’ have 4 months from service of the Demand before it expires and a fresh one has to be issued. This gives Creditors a significant amount of time to negotiate and deal with the Debtor in good faith.

There is no prejudice to a Creditors’ position in coming to a repayment plan (temporary or long term) after the Demand is served.

It also provides a useful ‘intensive care’ period with which to study the Debtors’ behaviour and decide whether there is room for future business with them.

Case Study 

We were instructed by the ID supplier of a telecommunications reseller who wanted an independent review of the credit control processes. Owing to the resources available, credit control activity was directed exclusively at the front end of the ledger (31-60 days).

We proposed a pilot scheme undertaken on a representative sample of the 61-90 days. The pilot would basically offer a repayment plan, in addition to the regular invoicing. There was a significant take up which resulted in a roll back of over 10% of the ledger.

It was also pleasing to see that there was less attrition in the ledger generally, as the number of customer entities being charged off reduced significantly.


Has someone beaten you to it?

Whenever a bankruptcy petition is filed, the Land Registrar is notified (to prevent the Debtor from disposing of any assets). The Land Charges Register will be noted with a Pending Action, referring to the petition number and the Court that the Petition was issued in.

From 29 July 2014, Creditors have been under a duty to search the register for any existing petitions when presenting their own petition.

A significant amount of money can be saved if the Creditor simply searches the Land Charges register before they even contemplate issuing a Demand. If it transpires that there is already a pending action against the Debtor, Creditors may decide not to proceed but rather to make contact with the Petitioning Creditor and support a bankruptcy order being made.

Stay on top of credit reviews

Where the trading relationship between the Creditor and Debtor is long standing and largely uneventful, there is little impetus to undertake a Credit Review. In an environment where there is never enough resource to day all of the day to day tasks, the credit review often gets overlooked or snowballs into a ceremonial undertaking of mammoth proportions done every 6 months across the ledger.

We would always recommend a ‘little and often’ approach to credit reviewing undertaken on the basis of risk.

Whilst you may think that a Debtor with an immaculate payment record is low risk- consider the following:

When was the last time you spoke to them? Do you know the name of the person in Accounts Payable who authorises payments? Are you sure that you have up to date contact details? How has their order level changed over the last 6 months?

The point here is that by staying on top of Debtor positions, you get a better informed view of how the Debtor is behaving. Behavioural information, when used, is the best defence against providing an errant debtor with massive amounts of credit.

We are LincsProcess

We serve legal documents all over Lincolnshire for a fixed fee. We assist our creditor partners and their professional advisors with their debt collection by providing field services aimed at driving recoveries, delivering intelligence and maintaining the customer-supplier relationship.

If you, or one of your clients, would benefit from this approach, get in touch.
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