Stand Your Ground: Getting paid in an Uncertain Market

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It’s fair to say that training and qualifying as a solicitor during and in the aftermath of the 2008 financial crisis has left a mark on me. With announcements in February that the UK may have slipped into a recession its worth bearing in mind some lessons learnt during that turbulent period, particularly since recent trends indicate an increase in disputes and litigation, with delayed payments becoming a prevalent issue.

The adage "cash is king" never rings truer than in times of economic uncertainty, emphasizing the need for companies to fortify their positions and assertively pursue outstanding debts. Robust credit control measures are paramount for companies seeking to safeguard their financial stability. Establishing stringent internal procedures ensures proactive management of accounts receivable, minimizing the risk of late payments and defaults. For instance, implementing clear credit terms, conducting regular credit checks on clients, and promptly following up on overdue invoices are indispensable practices to maintain a healthy cash flow.

In cases where amicable resolutions prove elusive, directors should not hesitate to resort to other recovery methods. There are a number of measures in the debt recovery “toolkit” short of litigation. Companies might want to consider whether certain forms of alternative dispute resolution are appropriate, especially where confidentiality is a concern. Directors might also want to consider contractual remedies, for instance suspending services to a non-payer or applying a contractual rate of interest to outstanding sums with a view to securing payment.

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Special remedies can drafted in to supply agreements and / or terms of conditions to make obtaining payment easier in events of default, for instance requiring company director’s to personally guarantee payments where a transaction would appear risky or introducing contractual provisions which would allow an agreement to be summarily enforced without recourse to the Courts.

Despite the inherent complexities and costs associated with legal action, there are instances where it becomes necessary to protect a company's interests. Pursuing debtors through legal channels not only reinforces a company's commitment to its financial integrity but also serves as a deterrent. Where a debtor is suspected of concealing or disposing of assets in anticipation of a claim enforcement measures such as the freezing of bank accounts or seizing of property can be obtained at the outset of an action and sometime the very act of obtaining such an order is enough to secure a speedy resolution of the matter.

It is crucial for directors to recognize that the repercussions of non-payment extend beyond immediate financial losses. In the event of a customer insolvency, creditors often find themselves relegated to the bottom of the priority list, facing diminished prospects of recovering their dues. By “standing your ground” and taking proactive steps to address overdue payments the risk of being marginalized in insolvency proceedings can be mitigated. Moreover, adopting a proactive stance towards debt recovery sends a clear message to stakeholders, reaffirming the company's credibility and commitment to upholding contractual obligations.

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