To Write Off or Not to Write Off
In 2013 we were contacted by the director of a large family-owned double glazing glass manufacturer. The business has an annual turnover of approximately £10 million and supplies glass to double glazing firms in East Anglia and the Midlands. The company was about to write off several aged bad debts totalling nearly £85,000 and had decided to contact us in a last-ditch attempt to see if we could recover some of the money owed.
In our preparations to recover the said sum, we conducted our due diligence and found that two companies out of nine had gone into receivership, so no action could be taken against them to recover an amount of nearly £16,500. The other companies, owing the remaining sum of nearly £68,500, were all still trading so we immediately set to work to recover the monies due. To the company’s surprise, we were able to collect all of the remaining sums, together with Interest and Late Payment Compensation in excess of £8,000.
Since 2013 we have built an excellent working relationship with the company. Together we have reviewed their terms and conditions to ensure that they meet the needs of the business. We have been instrumental in collecting the majority of their bad debts. The most recent was in May of this year, for a debt of £82,321. We carried out our due diligence and it appeared that the company was exceptionally viable. However our enquiries revealed, they had recently taken on a contract with a large home improvement chain which resulted in the business having to wait beyond 90 days for payment, which impacted on their cash flow.
The debtor initially ignored our requests for payment which included Late Payment Compensation and Interest, until we instructed one of our Process Servers to serve a Statutory Demand for payment. With the demand served we eventually reached an agreement where the debtor has agreed to pay £6,000 per month until the debt is paid in full.
Collections Managers comments:
It is generally quite simple; debtors who ignore request for payment should take notice otherwise face the consequences. However, in the last particular case, it became clear that the business was very viable but had become overstretched due to its contract with a multi-national retailer. In these circumstances, it was clear that it was easier to collect the money owed via an affordable arrangement as opposed to civil recovery through the courts.
Ex Business Partners Dirty Tricks
When Charles O’Neal’s demands for payment of £14,000, plus VAT, from an ex-business associate, fell on deaf ears, Charles felt that he was left with no other option but to instruct us to collect payment on his behalf, from someone he once considered to be a friend.
Charles said, “The moment I contacted the First Capitol team, they assessed the situation and set out a strategy to recoup the cash.”
The debt was well documented and supported with a thorough communication audit trail.
Our initial demands for payment were also ignored and it was agreed with Charles that the next step was to issue a Statutory Demand for payment. This proved to be a game changer. The debtor immediately instructed his solicitor, who fired off a letter to us insisting that the debt was disputed and demanding that we withdraw the Statutory Demand or face costs on an indemnity basis when the debt was set aside by a Judge. On Charles’s instructions, we sent a letter back insisting that the debt was owed and, in no uncertain terms, that we had no intention of withdrawing the Demand.
When they realised that our client was not going to back down he instructed his solicitor to issue a counterclaim for half a million pounds, citing all sorts of spurious allegations based on the contract that the debt related to loss of performance, loss of business, loss of profit, etc.
Charles commented: “This person was not only dishonest but also turned out to be a malicious and nasty individual. The debt was well documented but that did not stop the debtor fabricating some fantastic lies to try to get out of paying what was owed.”
The day before the demand was due to be heard in court, the solicitor for the debtor sent a fax to inform us that they were withdrawing their “Restraining Order” (to have the demand set aside). In the meantime, we were alerted by Experian that the debtor was discreetly trying to liquidate his company and had begun to transfer some of the assets to a “Phoenix” company and this, it appears, with the full knowledge of his solicitor. We immediately contacted Companies House and sent them a copy of the Statutory Demand together with a copy of the court documentation. By now the deadline for payment had expired. A ninety-day hold was put in place by Companies House to stop the debtor from dissolving the company.
This turned out to be another game changer because we were now in the driving seat. On behalf of our client, we presented a winding-up petition to the court and a hearing date was set.
A barrister was instructed and some two months later the case was heard and judgment was awarded in Charles’s favour and he was awarded approximately £24,000, including costs and interest.
Charles responded, “It was a complete success. I recovered the lot, plus costs and interest. The First Capitol team were completely transparent about how it all worked and what to expect.”
Collections Managers comments:
In this particular case, the debtor thought that he was being clever. Even in the face of cast iron documentary evidence, he peddled untruths which were full of holes. We were shocked that his solicitor who boarded on being complicit to his client’s web of deceit didn’t offer our client mediation. Sometimes disputes of this nature are best settled by mediation. Our client did initially offer a compromise settlement which was flatly rejected by the debtors’ solicitor. In cases where a County Court summons has been issued the courts do often offer mediation. However, in this particular set of circumstances, there is no opportunity unless it is suggested by either party. I believe that if the debtors’ solicitor had offered to mediate, they could have saved their client a considerable amount of money and inconvenience.
Franchisee’s Claims Disputes
A popular national wedding styling company had several debtors in excess of £23,000 relating to payments from franchise holders. The five franchisee’s were all behind on their monthly licensing payments.
The company made several vain attempts to collect what they were owed and were stonewalled by the five debtors.
We were instructed and were successful in collecting the amount of £18,375.00 from four of the five, which included costs and interest under the Late Payment of Commercial Regulations 2013.
Unfortunately, we have found that the remaining debtor has no assets and is currently out of work. Therefore the prospect of achieving a successful outcome right now would be quite slim. However, we are reviewing her status on a regular basis to see if her circumstances change.
Collections Managers comment:
Our client’s claim was relatively simple. Invoices had been raised each month in accordance with the franchisees’ agreement,which the five failed to pay. However, the moment that we became involved, the franchisees tried to dismiss our client’s claim on the grounds that they had not been fully supported whilst they held their franchises.
Our client’s record keeping is impeccable. All communication with each franchisee was fully documented from the start of their agreement.
With no evidence to support the debtors’ claim, this was dismissed by our client, who pointed out that none of them had raised this concern at any time previously.
The debtors were clearly in breach of their agreement and all the evidence supported this conclusion.
Poor Credit Control
Two years ago a roofing company with an annual turnover in excess of three million pounds was suddenly caught out when a number of clients who had been regular payers, suddenly stopped paying on time. This had a profound effect on the company’s cash flow and they were forced to request an increase in their overdraft to meet the day to day costs of running the business: i.e. buying materials and paying the staff wages.
The company contacted us for help and after an initial consultation, followed by an onsite appraisal of the business, it was identified that the business was exceptionally viable but it just lacked a proper credit control procedure. The managing director admitted that he had taken his eye off the ball and also that the business was lacking adequate personnel resources to chase the money that they were owed.
To resolve the problem, in the short term it was agreed that the company would employ our Outsourced Credit Control Management services and in the meantime, they would advertise for their own staff which, once employed, we would train to a professional standard that would allow a seamless transfer of services back to the company.
Within twelve weeks of our involvement, the company had employed two dedicated part-time credit control staff who we fully trained. As a direct result, the businesses cash flow improved considerably and the business began to trade as normal with no cash flow issues.
Collections Managers Comment:
Credit control is the lifeblood of most businesses. You can’t afford to take your eyes off the ball. Sometimes with all the best intentions, it can be very easy to become a busy fool. Along with sales, invoices should be the number one priority. Customer credit limits should be continually managed. 90-day credit should be only given to good payers; that is customers who pay on the button every 90 days without fail. The moment this does not happen, then credit terms and limits should be reviewed. When a business is starved of cash through poor credit control, its cost can increase through extra bank charges and interest. It is worth remembering that things can go from bad to worse in a very short space of time.