Common Pitfalls With DIY Debt Recovery
Introduction
When a customer or client fails to pay an invoice, it’s not uncommon for business owners to consider handling the debt recovery process in-house. This approach will save time and money on using external advisers.
Or will it?
There a number of risks associated with debt recovery undertaken in-house and in this blog post, we’ll consider the common pitfalls associated with DIY debt recovery.
Lack Of Knowledge
The most common issue with DIY debt recovery is a lack of knowledge of the legal framework governing the process of collecting unpaid debts. The debt recovery process is governed by:
- The law of contract.
- The Civil Procedure Rules 1998.
- The County Courts Act 1984.
- The Late Payment of Commercial Debts (Interest) Act 1998.
- The Late Payment of Commercial Debts Regulations 2002, as amended by the Late Payment of Commercial Debts Regulations 2013.
- The Limitation Act 1980.
Without the relevant knowledge, businesses undertaking DIY debt recovery might:
- Embark on legal action in circumstances where their prospects of success are poor.
- Embark on legal action in circumstances where the debtor is insolvent and not worth pursuing.
- Embark on legal action in circumstances where it prompts retaliatory legal action from a customer or client.
- Inadequately set out the legal and factual basis of a proposed claim, leading it to be struck out.
- Fail to follow the correct procedure, resulting in a claim being struck out.
- Fail to act in accordance with the relevant rules, resulting in a liability to pay a costs order.
- Fail to claim all sums that might be available; for example, contractual or statutory interest and/or statutory late payment compensation and/or costs.
- Fail to adequately record the terms of a settlement.
- End up subject to a judgment (more commonly known as a county court judgment or ‘CCJ’).
Mishaps like this can:
- Result in the loss of a significant amount of management time.
- Cost money.
- Impact credibility.
- Have an impact on credit rating.
Lack Of Time
The debt recovery process typically takes up a lot of time and where businesses lack the resources required, things can go wrong. The most common risks associated with a lack of time include:
- A failure to take action quickly enough.
- Missed deadlines.
Debt recovery claims typically have to be issued at court within 6 years. If this deadline is missed, a claim will usually be ‘statute barred’
Missed deadlines can be particularly costly and lead to the loss of a case, even where prospects of success would otherwise have been good.
Wasting Time
As previously stated, the debt recovery process typically takes up a lot of time and as the saying goes, “time is money”.
DIY debt recovery has the potential to divert resources away from other areas of a business, particularly where managerial staff are involved. This time could be better spent elsewhere; for example, in growing sales and improving profitability.
Damaging Relationships
In business, preserving commercial relationships can be just as important as recovering unpaid debts. This is why things can go wrong when a business embarks on DIY debt recovery.
The most common risks are:
- Jeopardising relationships with long-term customers and clients through over aggressive communications.
- Reputational damage within the marketplace.
- The loss of future sales.
Introducing a third-party, such as a firm of debt collection solicitors, can help to reduce tension and keep commercial relationships on track.
Conclusion
There are a number of common pitfalls with DIY debt recovery. These include:
- A lack of knowledge.
- A lack of time.
- Wasting time.
- Damaging relationships.
Ultimately, DIY debt recovery can result in reduced chances of success. Why take the risk?
These pitfalls can be avoided if businesses consider outsourcing their debt recovery requirements to a firm of debt collection solicitors.