The economic fallout from COVID-19 will have many businesses facing issues with unpaid debt. As cash flows tighten, this is a good time to understand the process of debt recovery.
The exact procedures will differ depending on the agreement you have with your debtor and the type of debt, but the general process is as follows:
1. Informal reminder: it is quite common for a payment to be late or forgotten; usually an email or phone call to remind the debtor is all that is required.
2. Formal notice: if your debtor does not make payment for an extended period you should notify them in writing of the unpaid debt, and that they are required to make payment under the agreement or terms of trade. The notice should give a timeframe for payment to be made.
3. Letter of demand: if payment is still not made, you can then issue a letter demanding the debtor makes payment or you will take legal action to recover it. This letter could provide an offer to negotiate a payment plan.
4. Legal action: if still unsuccessful, then you may begin legal action to recover the amount owing. This could involve applying to the court for a judgment to recover the amount.
5. Enforcement: if an order for repayment is made, then you can apply to have the judgment enforced. Possible enforcement orders could include a repayment schedule, confiscation of assets, using a debt collection agency or even the appointment of a liquidator.
In these post-COVID times, many businesses will be struggling with cash flow and the viability of their business may be in question. It pays to remember that the style and tone of communications with your debtor may make the difference between being paid or not paid.
The debt collection process can vary depending on the situation and there can be pitfalls if the process isn’t followed correctly. If you are unsure about how to proceed to recover a debt, please don’t hesitate to contact us.
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