Navigating commercial disputes and problem debtors in a post-pandemic economy

Although the government has announced the lifting of its ‘Plan B’ COVID-19 restrictions, it is understandable that businesses remain concerned about adverse cashflow as the result of invoices being paid late or not at all, with ‘the pandemic’ still often being mentioned as a catch all excuse by problem debtors.

It is a well-worn truism that in business ‘cash is king’. Often the viability of a business will hinge on whether invoices are paid on time. Sometimes when a debtor refuses to pay, there may be particular reasons well-founded or otherwise as to why that is the case. However, managing problem debts and resolving any disputes that are raised in a prompt and cost-effective way will undoubtedly help a business’s cashflow in a of time economic uncertainty.

It is important that dispute prevention advice and client assistance is available at an early stage where possible. Here are several useful tips which can potentially assist should your business find itself chasing debtors:

Be clear in your communications

Having regular, clear communications with debtors to see if they can’t or won’t pay is an important first step. From our experience, picking up the phone and following up with a letter or email is a good way to engage directly with debtors and keep a clear, written record of any delay in payment. Be especially clear about what consequences will follow if the debt remains unpaid. From a debtor’s point of view, when cashflow is tight good communication is likely to buy additional time to settle invoices owed. Offers to pay in instalments might be enough to avoid enforcement action being taken. This step should not be underestimated as it is important for both the financial and reputational standing of a business.

Keep good records

Having clear records of the relevant contractual documentation and key correspondence is vital. It does not matter how strong your position might have been, if you are unable to produce copies of the documents the court would expect you to in order to evidence that position. In the current climate, we have increasingly found that some commercial disputes have centred around whether a contract is legally ‘frustrated’ (which it very rarely will be) or terminable as a result of difficulties in performing the contract caused by staff shortages or government restrictions. It is therefore good practice to keep safe both the original contract and any subsequent agreements throughout a transaction, as well as all of the key correspondence.

Escalate appropriately and follow through with it

Lastly, clear escalation of collection efforts, up to and including formal debt recovery action if necessary, is key. Whether it be a Letter Before Action as a precursor to a County Court Claim, or a Statutory Demand issued where a debt is undisputed, identifying, preparing for and executing the most appropriate course of action saves both time and costs in the long run. This is particularly important if it is likely that legal proceedings will need to be commenced and settlement discussions have either stalled or broken down.

For plain-speaking, comprehensive advice or to discuss a particular debt recovery matter, please get in touch with our Litigation team.