As everyone is aware, the increased cost of living is having an impact on everyone – individuals and businesses. So what should you do when you have bad debt?  The cost of living increase is impacting businesses getting paid on time but should this result in debts being ignored? We don’t think so because bad debts will impact upon the creditor’s cash flow.

Both parties should work together to attempt to find a solution that they can stick to. Taking action to resolve disputes as quickly as possible helps the creditor to establish whether there is a chance of recovery.  It may be that an installment plan is the way to go or an alternative might be to place a charge on property, for example. Negotiations will also help to preserve future relationships.

Looking at things from the Debtor’s point of view

  • There is more pressure on debtors due to growing energy/food bills.
  • Funding to manage debt may be sought– possibly pay day loans and credit cards but these will be an expensive form of finance and only increase debt levels.
  • Forced bankruptcy proceedings.
  • Debtors may feel the best option for them is an IVA but this will impact credit rating.
  • The longer the debt remains unpaid the larger it is likely to get through legal fees, interest and court costs.
  • Failing to engage and deal with debt problems head on increases liability but lots of debtors choose to ignore letters/emails from creditors.

How can you work to resolve the situation

  • You should not ignore the issue.  This will only increase the amount you will need to pay back and may eventually lead to a CCJ.
  • Attempt to negotiate reasonable monthly payments with your creditors. This will help prevent the debt from increasing and you can manage your monthly expenditure if you can agree a set amount to pay each month. 
  • Agreeing a payment plan sooner may mean that creditors won’t pursue the debt further by court action.
  • The government’s Money Helper website has lots of free information on how to keep up with bills and payments.
  • Speak to a debt advisor about your situation and this will help you decide what to do.
  • The Breathing Space Scheme is available – although payments should continue to be made if Breathing Space is granted.

And Creditor’s point of view

  • Your cash flow is impacted.
  • You may not have the funds to pursue a debtor via debt collection agency, solicitors or court.
  • You are likely to come into difficulty collecting payment from some debtors and existing arrangements you have could fall into arrears.
  • Consider that courts may be more lenient with individuals.

How can you help to resolve

  • You ought to act quickly to recover the debt.
  • Consider negotiating a payment plan as soon as possible. In the current climate the longer you wait to recover a debt, the likelihood of recovery will decrease.
  • Be contactable and respond when a debtor gets in touch and let them know a “real person” is dealing with them.
  • Consider cutting your credit control length or shortening the amount of chaser letters you send before it is referred to a debt recovery solicitor.
  • Did you do your checks before taking the client on? The information you have about your debtor will give you an idea how far you may want to take the case and what your prospects of success may be.

Speak to us about your options and we will work with you to reach the best outcome.  Call us on 01283 526200.

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