Successful Credit Management During a Pandemic – Part Four
Welcome to the 4th and final chapter of our series of blogs to help you improve your ‘Order to Cash’ process in a practical way and reduce the negative effects of the pandemic on businesses.
See the previous blogs by clicking on the below links:
We continue to look at the elements that make up the Order to Cash to help you understand what areas of your business should be reviewed and strengthen and how to implement those improvements.
4. Legal Action
Each of your collection strategies should have a point when you will consider taking legal action.
Final Demand (Letter Before Action)
Whilst you should exhaust all other avenues to obtain payment before taking this step, don’t delay making this decision. The older the debt is, the more difficult it is to get paid. In a downturn in the economy, the longer you wait, the higher chance of your customer taking insolvency proceedings.
A well worded Final Demand Letter setting out the basis of your claim might get your customer’s attention enough to make payment. Ensure you have already applied credit sanctions at this point such as withdrawing service or holding goods.
Your Final Demand letter should explain the consequences of non-payment to your customer. Make sure you take the next step as described in your letter in a timely manner or you risk your customer not taking your requests seriously.
Pre-Action Protocols
Be aware of any Pre-Action Protocols that are applicable to the type of your debt. This will affect the contents of your final demand letter and the time you give you customer to make payment. Examples of different pre- Action protocols are:
- Construction and Engineering Disputes
- Debt Claims- these protocols cover individuals, which means consumers and also sole traders.
Some contracts stipulate Alternative Dispute Resolution (ADR). For example Construction contracts will usually have an Adjudication clause, therefore court action is not the appropriate recourse in this situation.
Before taking legal Action:
Some areas to consider are:
- legal entity– do you have the correct legal entity of your debtor? The courts are full of unenforceable judgments because companies do not have the correct legal entity name for their customer. This should be checked and verified at the outset of the relationship during the Credit Risk assessment process.
- Settlement– legal action has cost consequences to both sides. Have you tried to settle? Making an offer or settlement ‘Without Prejudice’ means you can offer a lower amount for settlement but still claim the full amount if you have to issue court action.
- Solvency– Is your debtor solvent? If not, you may be throwing good money after bad.
- Enforcement– How will you enforce a Judgment when you have it? Most debtors do not make payment once a Judgment has been issued by the courts, you will usually have to enforce the Judgment to get paid. There are several types of enforcement e.g.
- Execution against goods
- 3rd party Debt order
- Attachment of earnings order
- Bankruptcy/ Winding Up
Decide, before taking legal action, which is the most suitable form of enforcement for your debt.
Small claims court
You may want to consider issuing a County Court Claim in the Small Claims Court yourself without involving a solicitor which will keep the costs down. Certainly the courts encourage both parties to act for themselves, so costs don’t become out of proportion to the principle debt.
Whilst issuing a claim is fairly straight forward, we recommend you seek to improve your knowledge to be able to effectively deal with issues such as defences, counterclaims and what to do before and during a hearing.
The future
Whilst it’s impossible to predict what the winter will bring for businesses with a resurgence of Covid- 19 hanging over us all , there is no doubt we will be stuck with changes to the way we work and do business for some time. All businesses need to adopt and adapt their ‘Order to Cash’ processes to keep cash flow as positive as possible to be able to come out of the other side.
What’s next?
To gain a deeper understanding of some of the areas mention in our blogs, we have some free factsheets and are offering a free Credit Reference Agency Report. Click here for more details
(1 landing page with separate links for credit check & factsheets, (if they give contact details) advertisement for other services with links & contact us)
To find out more about our services, click on the relevant links below:
- Support service– From as little as £30 per month
- Training– Low cost webinars and courses to help you improve Cash Collection performance and how to use the Court’s Small Claims process.
- Outsourced collections– We become your virtual Credit Control department. All communication with your customers is carried out in your name
- Debt Recovery– Speak to us about our contingency feeservice
- Consultancy– Review and strengthen your ‘Order to Cash’ process in a practical way and coach your staff to improve performance and cash flow.
Or just call us on 03332 413 203, email Contact@cmgroupuk.com
