October 29th, 2012 / Insight posted in

Best way to deal with unpaid bills

AM writes: My manufacturing business is struggling because a client hasn’t paid for his last two orders. What is the best way to recover the money owed?

As is often the case with these problems, you need to ask whether your client is unable to pay or chooses not to, writes Ian Robert, insolvency partner at Kingston Smith LLP. If your client is having financial problems, you need to take steps to get yourself ahead of all the others demanding money.

If the customer has not paid for stock, you should be able to rely on “retention of title” clauses to recover it, on the basis that the title to that stock has not passed to the customer until it has been paid for in full. The terms and conditions of these clauses can be a legal minefield, so you should speak to a lawyer to get this right.

If you are unfortunate enough to find that your customer is in administration or liquidation, you would be wise to attend on site, identify your stock and set it aside, while your retention-of-title claim is validated. Once the stock has been sold, it is unlikely you will be able to enforce your claim.

When you are considering action to recover a debt, you should also think about the wider impact. There is a big difference between taking action against someone representing 10% of your client base and someone representing 1%.

Finally, if legal action is the route you are going to take, make sure you have your housekeeping in order — that means having the terms of your engagement for services in writing, the services clearly identified, and evidence of providing those services.

As is usually the case, prevention is better than cure. Knowing your client well, getting regular credit checks, having appropriate terms and conditions and maintaining good credit control procedures will reduce the risk of having a client that can’t pay.