Act fast to get what is owed to you

Aug 5 2009 by Iain Laing, The Journal

AS the effects of the recession take hold it seems that every day the business pages are filled with news of companies going into administration or liquidation.

The use of appropriate debt recovery procedures can help ease cash-flow worries. They ensure that debts owing to companies are paid quicker, before any formal insolvency event such as liquidation or administration.

If a supplier owes money to your company, the worst case scenario is that such debtors go bust. In most cases you will be an unsecured creditor and it is highly likely that there will be very little left for you after the assets have been realised, after paying the bank and the process costs.

In better economic times, using legal procedures to secure payment of debts was reserved for exceptional cases or problematic customer relationships. Many firms stayed away from debt recovery solicitors.

However, in an economic downturn, the sooner action is taken when a debt has not been paid within usual credit terms and without a justifiable reason for its non-payment, the more likely a debt will be recovered.

In my experience, talking to finance directors of companies in financial difficulty, the message that comes through time and time again is that only creditors who are "shouting the loudest" are getting paid. In most cases, this means making the appropriate threats of legal proceedings, and carrying out such threats, where applicable at the earliest opportunity.

In deciding how to tackle a particular bad debtor, it is necessary to establish whether it is a “can't pay or won't pay” scenario. If it is “can't pay” then extracting the most value at the earliest opportunity is essential, as such a company could topple over into insolvency before the debt is repaid. It is possible to look at other options such as seeking security over assets.

In a “won't pay” scenario, it is necessary to take the most aggressive stance possible. Often, it is appropriate to use the threat of winding up proceedings to secure payment where the debt is undisputed. In some cases, a creditor can also apply to court for an administration order under amendments introduced by the Enterprise Act 2002.

Andrew Cawkwell is head of corporate recovery at Watson Burton.