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Effective debt recovery begins with effective documentation of the transaction. This entails more than merely getting a signature on a piece of paper. Think about the information you will need if you have to sue to recover the debt. Here are some things to consider:
- is the debtor a natural person, a company or some other type of entity?
- have you confirmed the identity of the debtor by requesting proof from an individual or conducting a company or business name search?
- have you confirmed the personal and business addresses of each of the debtors?
- have you recorded all this information accurately in the contract?
- have you conducted a credit check on the debtor and, if applicable, its directors or proprietors or promoters?
- have you identified fully and precisely the money, goods or services to be provided?
- have you specified precisely when payment is due?
- have you specified precisely what will happen if payment is not made by the due date?
- if you want to charge interest, have you specified precisely the rate to be charged, the method of calculation and the date from which interest will run?
- if you are selling goods, have you made clear precisely when title to the goods passes to the purchaser and have you included a "Romalpa" or "retention of title" clause?
- if there is to be a course of trading, have you obtained the debtor's agreement and signature to comprehensive and well-drafted "Terms of Trading"?
- if the debtor is a company, or if you have some doubts about ability to pay, should you get personal guarantees from third parties? Do you have a well-drafted form of Guarantee?
You must have the debtor's agreement to your terms before you perform your part of the transaction. It may not be enough to rely on your terms of trading on the reverse of your invoice.
You must enforce your terms, otherwise you are sending an implicit message to the debtor that you do not care. How you enforce your terms is a matter for your commercial judgment. I suggest that, immediately after the due date, an "account rendered" be sent, specifying a new due date. If the debt is still not paid, refer the matter to me for immediate legal action.
Prompt and efficient enforcement action is crucial. The longer a debt is left unpaid, the harder it will be to recover. It must be made clear to the debtor that you will not let up until you have been paid.
Remember that, if you have to sue to recover your debt, the Court will require you to prove your case. Careful documentation of the transaction, and of your enforcement action, will play a very important part in that proof.