Debt Recovery - If all else fails – the last resort

Posted by Luke Mitchell on 06 June 2018
Debt Recovery - If all else fails – the last resort

While our previous blogs have focused on the steps a business can take to avoid bad debts, sometimes despite your best efforts you will be forced into some sort of debt recovery process.

Most people immediately think legal action when they hear the phrase “debt recovery”. While formal proceedings are certainly one way in which a debt can be pursued, it is not always the best way. Court proceedings are typically time consuming and expensive.

It is not feasible to provide a detailed overview of formal debt recovery proceedings in this blog. However, in short it can be a particularly frustrating process. It is extremely important to keep in mind that even if you are successful in having a Court award you judgment, actually getting the money out of the debtor can be a whole other costly and time consuming process. In the end, there is often a very real risk that investing funds in formal recovery proceedings is merely throwing good money after bad.,

So what else can a business do to recover its debts?

An alternative to legal action is to report a payment defaults to Credit Rating Authority. An adverse report by a creditor will affect the ability of the debtor to get credit in the future. This is often a powerful incentive for debtors to pay up, especially where the report is made against an individual. For this reason, obtaining personal guarantees at the outset of the relationship is particularly desirable.

However, as with may things in life, prevention is the best cure. Creating and sticking to a thorough customer engagement and management process will greatly reduce a business’ exposure to bad debts and costly and time consuming litigation.  A relatively small investment of time and money at the outset of the customer relationship can save you from a significant investment at the end of that relationship.

We specialise in providing clarity and confidence to business operators in their legal relationships – contact us today to discuss the legal needs of your business.