Five ways to make them pay their debts

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When peo­ple tell me that they are owed mon­ey and ask me what they can do to recov­er that debt, I can only tell them half the sto­ry. The oth­er half of the sto­ry only they can tell me.

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My half of the story

The legal sys­tem pro­vides a num­ber of mea­sures to enable you to try to recov­er a debt owed to you once it has fall­en due.

Gen­er­al­ly speak­ing, if you have exhaust­ed all attempts to recov­er the debt by beg­ging, cajol­ing and send­ing threat­en­ing let­ters, you will need the assis­tance of the court.

You will have heard terms such as state­ment of claim, statu­to­ry demands, wind­ing up appli­ca­tions, writs, gar­nishees, bank­rupt­cy notices and so on. Each of these pri­ma­ry debt recov­ery tools has its own pros and cons and chances of suc­ceed­ing. Which is the best one for you will depend on the cir­cum­stances of your case.

Any lawyer worth their salt knows these mea­sures like the back of their hand. This is the half of the sto­ry that I can tell you.

Your half of the story

Your half of the sto­ry is the answer to my ques­tion — what mea­sures have you tak­en to help your­self recov­er this debt? 

Con­sid­er one spe­cif­ic exam­ple: you com­mence court pro­ceed­ings to recov­er a debt against a com­pa­ny and dur­ing that process the com­pa­ny is placed into admin­is­tra­tion or liq­ui­da­tion. This will dra­mat­i­cal­ly reduce your chances of recov­er­ing your debt. If you are an unse­cured cred­i­tor, you will be forced to line up with all the oth­er cred­i­tors and accept what­ev­er cents in the dol­lar are final­ly paid to cred­i­tors by way of a div­i­dend. Usu­al­ly this is zero. There are many oth­er such examples.

Here are five mea­sures which you can take to pro­tect yourself:

Com­pre­hen­sive cred­it check

• An obvi­ous pre­cau­tion is to do a com­pre­hen­sive cred­it check before you do busi­ness with any com­pa­ny. This is the most basic pro­tec­tion against future bad debts. It can help you decide what terms of trade to extend and whether you want to do busi­ness with the com­pa­ny at all. Sur­pris­ing­ly, many com­pa­nies omit this sim­ple step.

Insert a clause in your terms of trade

• A prop­er­ly draft­ed clause in your terms of trade allows you to place a caveat over a com­pa­ny or the prop­er­ty of its direc­tors if the com­pa­ny does not pay its debts.

Reten­tion of title clause

• Hav­ing a prop­er­ly draft­ed reten­tion of title clause on your invoic­es will enable you to recov­er the goods you sup­plied to the com­pa­ny if some of those goods were not paid for. With­out such a clause, those goods may well be sold and the pro­ceeds used to pay all creditors.

Direc­tors’ per­son­al guarantees

• You have the right to insist that the direc­tors of the com­pa­ny give you per­son­al guar­an­tees as a con­di­tion of doing busi­ness with you. This will mean that you have access to their assets if the com­pa­ny has none.

Secu­ri­ty over an asset

• You have the option of tak­ing secu­ri­ty over an asset of the com­pa­ny by a charge or some oth­er means of secu­ri­ty. This will enable you to seize the prop­er­ty which is the sub­ject of the secu­ri­ty, rather than wait­ing in the queue with the oth­er (unse­cured) creditors.

Fore­sight is bet­ter than hindsight

These and numer­ous oth­er mech­a­nisms can make it eas­i­er for you to recov­er debts when they fall due. But what I can­not stress enough is how impor­tant it is to act in advance, before trad­ing starts or before the debt falls due, to give your­self the best pro­tec­tion you pos­si­bly can.

Deci­sive pre-emp­tive action is by far your best bet when it comes to recov­er­ing the mon­ey that you have worked so hard to earn.

Ter­ry Sper­ber’s arti­cle on ways to recov­er debts first appeared on the web­site of My Busi­ness Magazine. 

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