Collecting a debt after legal action taken and enforcement failed
In a case this month a new client came to us in a last ditched attempt to get their debt paid. They had already taken legal action themselves using Money Claim Online and had been successful in so far as they were awarded default judgment, but the debtor failed to pay and court enforcement officers failed to collect.
After investing many hours and money (court and bailiff costs) the client was at the point of giving up and accepting that they had thrown good money after bad. In a final attempt they searched for a debt collection agency working on No-Win, No-Fee and chose Sterling as we have proven expertise in their sector.
Sterling started work on the debt within 24 hours and following an investigation of the debtor’s business we were able to make contact with an employee at the appropriate level in the company to be able to resolve the matter. Our skilled debt recovery agent was able to explain the legal situation, and potential repercussions of non-payment. The debtor was inclined to apply to have the judgment set aside, but our agent was able to convince them that protracted legal proceedings would only result in the court finding in favour of our client, and further legal costs on both sides. Sterling was able to secure full payment of the judgment within two weeks of being instructed.
Sterling achieved the best result available to our client in the circumstances, however if the client had come to Sterling first rather than directly to court then they would have had a more profitable outcome far more quickly with less stress and frustration. In addition, when submitting the claim, the client had failed to add late payment compensation to the full extent permissible, meaning that the judgment amount (and hence the debt value we were legally able to collect) was less than it could have been.
Getting bad debts paid
We regularly hear from new clients who have chosen to take legal action either themselves or with a law firm and despite investing time and money they haven’t managed to be paid. Legal action can appear to be the obvious answer to getting paid, and often the client has become emotionally involved in the debt and sees litigation as a way of punishing the debtor. This approach, and certainly the desire for retribution, does not lead to the most profitable result. Litigation can drag on, be costly, time consuming and unpredictable.
Non-payment is almost always the result of one of these factors: disputes (whether legitimate or not), can’t pay, won’t pay, or errors in billing. Other than won’t pay’s and disputes, escalating a debt directly to legal proceedings does not address the root causes and therefore will not result in payment. Even with won’t pay’s or disputes, litigation is very seldom the most efficient way to resolve the matter. An experienced debt recovery agency will be able to identify the reason for non-payment and approach the debtor in a manner that is optimal for his case, heightening the chances for a successful recovery of their clients’ money.
Using a law firm
Instructing a law firm is often seen as the most obvious approach to getting a debt paid. Unfortunately it does have disadvantages. More often than not the immediate reaction from the debtor, when receiving a solicitor’s letter (even the simple £2 letters now common in the market), is to instruct their own solicitor to respond. The letters between the firms start to flow, seldom with any discussion by phone, usually the result is litigation, often with a defence lodged meaning that the hours add up further. The fixed fees quoted by law firms to submit a claim can seem cost effective, but they do not include responding to a defence which is usually at a high hourly rate. The cost of the process for each side can exceed the value of the debt itself.
Where a solicitor does manage to agree payment prior to court proceedings it is usually a settlement of less than the invoice value, so that both law firms can claim a win for their client.
The other factor to consider is the objective of the law firms. Whereas a debt recovery agency like Sterling is focussed on collection (this is how we get paid), the law firm is focussed solely on winning the case. The solicitor’s involvement ceases once judgment is achieved, and little consideration is given to the costs of the process, the risks vs reward, whether the debtor has the money to pay a judgment, or whether there are assets to enforce against.
Using Money Claim Online
Money Claim online is supposedly designed to be used without the need for any legal expertise. It is relatively easy to issue a claim, and in some simple ‘won’t pay’ cases it can get results. There are huge drawbacks to the system however. If the debtor submits a defence then the process becomes complicated, and should the case end up in court the judges can be less than forgiving when it comes to inexperience in the process with cases thrown out for seemingly irrelevant technical lapses. Where a case does result in judgment there is usually still the matter of enforcement. Where bailiffs and court enforcement officers sometimes do get results, often a more creative approach is needed such as applying for a charge on a bank account or mortgage, or having a Director interviewed in court about their finances. Figuring out when and how to use these options is beyond the ability of most business people, and beyond the ability of all but the most specialised solicitors.
Using Sterling Debt Recovery
Engaging a debt recovery agency removes the animosity and emotion from the situation, so that the legal status of the debt and liability for payment can be explained to the debtor, along with the potential repercussions and costs relating to potential legal proceedings. Working on a No-Win, No Fee basis removes the risk of throwing good money after bad, and Sterling are able to add late fees and compensation to the debt, including reasonable costs of recovery, so that in most cases the debtor effectively covers the cost of our service.
Even where the debt recovery process is unsuccessful in collecting it provides invaluable information about the status of the debtor and debt. The process should establish whether legal action will be successful based on the evidence available to both sides, whether the debtor has assets to pay if proceedings succeed, and whether and how the assets can be enforced against.
Where we are unable to collect we will advise our client on the risks, costs and chances of success of legal proceedings, sometimes advising against litigation where we believe there is a high risk of the debt not being paid, or the process not being cost effective. Where we do take legal action our solicitor takes a holistic approach to the process, considering where funds for payment will come from, and what type of legal process is likely to be fruitful.
You can Contact Us here for a free evaluation of your debt.