Firms finding it difficult to recover debts

SINCE the start of the recession many businesses are finding it increasingly complicated to recover their debts as debtors use questionable tactics to stall or evade payment.

Christopher Burke, from Oldham law firm Pearson Hinchliffe Commercial Law, said debtors may have what they believe are legitimate reasons such as disputed debt or a counterclaim.

He added: “Our litigation team is reporting that, since the downturn, more and more debtors allege that the debts they owe are not due in a bid to buy time while their own liquidity improves, in effect using their creditor’s money to run their business.”

The ploy is often used by debtors to strengthen their position in negotiating a discount on the debt.

They hope that creditors will see it as too time consuming and costly to recover the debt either through the County Court or by issuing a winding up petition.

Debtors are warned against raising specious defences or counter-claims in order to avoid payment, as the debtor will have to prove it has a valid dispute or counterclaim should proceedings be issued.

The first port of call for a business wishing to recover a debt is a formal letter before action. They are rarely ignored by the recipient and generally bring an end to procrastination and hollow promises of payment.

They are also important as failure to send a letter before action may result in the creditor being penalised in costs in any subsequent proceedings as the debtor may claim that had he known the seriousness of the situation, he would have paid without the need for the costs to have been incurred.