20 June 1995
28 October 2013
13 November 2013
29 July 2013
26 June 2013
18 October 2013
The basics of debt litigation are often forgotten in the misguided pursuit of speed and cost cutting. Despite the obvious need for speed, litigators must not lose sight of the need to advise on the client's overall transacting process, how the process can be improved and how the client can take steps to help themself.
From the litigator's point of view, the ideal scenario for speedy collection of a debt must be based upon: an identifiable or traceable debtor; relevant and helpful documentation incorporated in the contract; evidence to prove liability; a limited reliance upon oral
evidence, but if necessary, then available and informed witnesses; and sufficient assets to satisfy any judgment.
From the client's point of view, the collection process must be quick and cheap. Speed of response is usually the key requirement. It is all too easy to reduce the collection process to a 'conveyor belt' procedure and not consider how the source of the debt affects the collection.
However, even the most efficient computerised debt recovery system will founder on spurious defences raised in a contractual framework where there are no means to address them. Debt recovery should not, therefore, be seen as an isolated or automatic function, but as a symptom of a problem in the client's business which could be tackled by examining the cause of that problem.
The client and not just the litigator should be organised and prepared for litigation. Attention to detail and preparation at the earliest possible stage could eliminate or at least reduce any future problems.
In establishing an effective debt recovery process, it is essential to consider the client's business and the market in which it operates, how it trades, and the nature of typical debts, debtors and defences raised.
Initial credit checks, made by the client before contracts are agreed, are essential in assessing the financial standing of
future customers and, therefore, future debtors. If there is any doubt as to financial standing, trading should not even commence. If it does, then future litigation could carry with it a commercial risk.
The smooth running of litigation can be frustrated by debtors producing evidence that the client's procedures and obligations were not met, or that unfavourable ad hoc agreements were reached with the client's staff.
Training will ensure that staff are aware of the client's rights and obligations in the contract. The aim should be that there is no compromise of the client's rights through carelessness or ignorance.
The client should maintain documentary records of transactions, conversations and informal dealings with its customers and particularly complaints made.
If information is available regarding the debtor's financial status and details of the client's dealings with it, the merits of pursuing a claim can be assessed at an early stage, which may save wasted costs.
Debt collection results from a contract under which the debtor has reneged upon his obligation to pay. The paperwork evidencing the contract is the key element. Terms and conditions should be scrutinised and if necessary redrafted to suit the client's business and to provide protection. Any ambiguities should be clarified. Suitable clauses could be drafted to limit typical defences where regular disputes are raised as to the quantity and quality of goods or services, or the accuracy of invoices. Deemed acceptance could be imposed if no complaint is received within a specified time period.
One vital aspect which is often overlooked is whether or not carefully drafted terms are incorporated. A signed acceptance of the terms by customers is a very simple solution.
Where litigation is contemplated, it is important that the client is advised fully of the internal steps which can be taken before the expense of solicitors is incurred.
There are many computerised collection systems which may be installed and operated by clients. Without legal training, the use of such systems may be limited, but remain a possibility.
There are also many collection agencies who may offer a compromise between a client's own collection system and the use of a solicitor. Contingency fees may, therefore, be negotiated.
At the least, standard termination letters, default notices, final demands and standard instruction checklists should be drafted for the client and employed in accordance with an advised procedure.
If the client needs the services of a solicitor for bulk debt collection, speed and cost are major considerations which may be addressed by computerisation. Based upon brief data prepared at the outset, many computer systems automatically produce completed litigation documentation, calculate interest, produce updated reports on each case and even raise disbursement payment requests. And such systems can be run by junior fee earners with a minimum of supervision and without secretarial support.
Despite devices to make the role of debt collector quicker and easier, the litigator should take a proactive and not reactive approach to the client's instructions. The aim should be to advise and to work with the client in solving the problem of outstanding debt.
Only by educating the client about what is needed for the ideal collection process will the litigator be able to achieve the client's expectations of speedy and effective collection.
Jayne Poxon is a litigation solicitor at Davies Arnold Cooper.