When normal credit-control procedures are exhausted and you are convinced that you are in the right, you ultimately face a choice. You can give up and write off the unpaid amount as a bad debt. Alternatively, you can take legal action to enforce the payment that should be yours. Writing off a debt is sometimes the best thing to do, but it should be avoided if possible. Here we look at the alternative, which is to take legal action to enforce payment.
This post will be read in several countries, but reference to the legal system relates to the legal system of England and Wales. For this purpose, Scotland is a foreign country. It has many similarities to the English system, but there are some differences. Most of this chapter concerns advice on general principles and applies to almost all countries.
Considerations prior to deciding on legal action
There are some very important points that you should consider before commencing legal proceedings. Among them are the following:
Can the customer pay? There is an old saying that blood cannot be got out of a stone. If the customer really has not got the means to pay, as opposed to choosing not to do so, there is little point in taking legal action. You will win the case but still not get paid, and will have incurred legal costs as well.
Costs. Legal costs will be incurred if an action is taken. There are ways to minimise them, and you may be able to do some of the work yourself, but some costs cannot be avoided. You may succeed in recovering some of them from the customer. Some solicitors and credit agencies are willing to operate on the basis of ‘no win, no fee’ and to be paid a percentage of the amount actually recovered. But you will still be liable for court fees and expenses. You would be well advised to consider the likely amount of costs, the chances of winning, the chances of recovering some costs from the customer, and the amount of the debt. Then you should take a cool decision about whether to proceed or not.
The chances of success. The chances are probably very good if we measure success by winning the case and getting judgment. The overwhelming majority of actions are successful if measured by this yardstick. This is because in most cases there is no real dispute and the case is undefended. Everyone knows that the money is owing; it is just that the customer will not pay. However, if by success we mean winning judgment and getting payment, the chances of success are less.
An understanding of the legal system. It is important to understand that the legal system is there for you to use. It can provide a forum in which you can make things happen, but it will not make things happen for you. There are a lot of procedures and rules to be followed which you may find frustrating.
Even though you are in the right, and even after you have won your case and got judgment in your favour, the legal system will not act on your behalf. You must fill in the forms, pay the fees (which you will hope to recover from the defendant) and be proactive every step of the way.
The importance of acting quickly. If a customer is in difficulties, it often happens that several suppliers will take legal action at about the same time. It does not follow that all will get a pro-rata share of whatever money is available. The ones that act decisively may get paid in full and others may get nothing.
Money obtained by the methods of enforcement – seizure of assets by a bailiff being one example – goes to the claimants in the order in which they applied for the enforcement action. Company A that applied on Tuesday may get paid in full, while Company B that applied on Wednesday gets nothing.