Relationships can vary, from short-term relationships such as 30-day credit arrangements with customers, or relationships of a more long-term character such as those formed between a business owner and their usual suppliers.
Being approachable and flexible when it comes to outstanding debts allows businesses to build solid relationships as well as avoid unnecessary legal costs. However, flexibility and willingness to negotiate need not come at the price of prudence. No matter how reasonable a business owner/operator may be, no matter the size or nature of their business, debt recovery through legal processes is an important feature of the business landscape. Ensuring your business is adequately prepared to tackle debts should they require legal recovery could save your business thousands of dollars in unnecessary costs, and may be the difference in determining whether or not pursuing a debt is commercially advisable.
Who is the arrangement with?
Corporations have legal personality. While you may negotiate and enter into a commercial agreement with a person, it is important to know in what capacity that person is acting. If they are acting as a director of a company, the company is responsible for any debt that may arise under the agreement, and you will not be able to pursue the individual for any amounts which may be outstanding even though they may have signed documents. This could have serious implications as to whether or not a debt may be recoverable.
There are several ways to protect your business with respect to entering into agreements with corporations to ensure that any debt that may arise is more easily recoverable. One such way is to draft a standard Director¿s Guarantee form specific to your business. This ensures that the director entering into the agreement is personally liable for any debt arising from the agreement. Not only does this allow for a more effective process of debt recovery, but in many cases it makes the potential customer more likely to live up to their end of the bargain as they know they are personally liable for any losses arising out of a breach of the agreement.
Getting all the details
In some cases, the most challenging element of recovering a debt can be simply locating the individual whom owes you the money! If you're entering into agreements with individuals, be they customers or individuals carrying on a business, it is important to attain as many details as possible at the time the agreement is made. Details such as:
- Accurate contact information
- Employment details
- Trading address
- Financial position
- Details of substantial assets
can all assist in locating potential debtors and avoid incurring unnecessary costs. In addition, many simple practices such as attaining photocopies of driver's licenses can greatly assist in locating an individual who may change their address.
Prevention is better than cure
Rather than waiting for a debt to go bad before considering recovery options, it often proves extremely worth while for businesses to review their documentation and practices with solicitors experienced in debt recovery. This allows for any weaknesses to be realised and corrected before they cost you and your business money in bad debts. Ensuring your documentation and business practices are strong can make your business infinitely better equipped to handle debts which may arise. Finally, ensuring you are as protected as possible can prevent debts from arising in the first place, as those with whom you do business will know that you are fully prepared to pursue payment of moneys owed to you.
To discuss pursuing debts owed to you or your business, or to review your business practices to make recovery of debts easier, less costly and less frequent, please contact us to arrange an appointment.