One of the features of the COVID-19 crisis is the feeling that ‘we are all in this together’. Everyone is keen to play their part to find a way through and there is huge sympathy for those businesses which have been forced to close their doors to protect the vulnerable.


As many businesses re-open their doors, others are still struggling and under the new measures it might be difficult for them to recover from the impact of lockdown. As income drops and cash flow dries up, tough decisions about debts will need to be made as business owners seek to keep their own business alive.


Businesses that are owed money need to be active and vigorous in their debt recovery if they do not wish to find themselves at the wrong end of a list of creditors.


Here is our seven-point step-by-step guide to the key things you should consider as part of your debt recovery strategy.


#1 Understand Your Terms & Conditions


Businesses that are owed money from customers should turn first to their standard terms of business to see what they say.  It is unlikely that any clauses will expressly deal with COVID-19 but there may be other provisions in there dealing with force majeure, act of God or credit control that may assist.  Where there are doubts, you should consult your solicitor for advice.


#2 Update Your Current Credit Control Procedures


Now is a good time to review what action you take to chase unpaid invoices, how this is done, by whom and when.  Businesses often find that a letter from a solicitor demanding payment of stale invoices produces better results and more quickly than a phone call, letter or email from the business owed money itself. Taking time to chase unpaid bills every month can eat into your productivity and have a double hit on your income.


#3 Monitor Your Debtors


Established high street names such as Debenhams, Oasis, Laura Ashley and Carluccios have all collapsed into insolvency since the pandemic hit the UK, and other less well-known businesses can be expected to follow. Businesses that intend to appoint an administrator must advertise this first in The Gazette (formerly the London Gazette).  You can also check Companies House records, and there is a facility to put a watch on a company and to receive an alert when it files documents or updates. Some businesses have carried on trading during the lockdown with some even managing increases in their sales, so you should carry out an assessment to decide whether any plea of poverty is genuine or not.  Corporate information providers such as Dun and Bradstreet may prove their worth for their subscription fees.


#4 Negotiate a Solution


Before calling a customer about non-payment, it is worth considering your options and being prepared about what you will or will not accept.  These include:



You may decide it is worth taking a hit to get a bill paid now by accepting or offering a discount on the invoice price.  Where there is any hint of a dispute, resource issues with the court system will presently make debt recovery difficult via that route.  If you decide to offer or accept a discount to get a bill paid, it must be made clear to a regular supplier that this is a one-off.  Take care if you think a customer may be on the brink of insolvency.  Where a business is insolvent, it is unable to prefer one creditor over another.  Even where a business collects on an overdue invoice, it could still face a claim for repayment at a later date by an insolvency practitioner.  This risk reduces the longer the time elapses from payment to the date of insolvency.  Your solicitor can advise you on this especially where a large payment is due.  Where such a payment is made for less than the invoice price, then an addendum should be drawn up and signed by both sides.  Your solicitor can help you with this, making the payment terms clear but reserving your rights to claim for the full amount if circumstances change in the future.


Deferral of Payments


If you are considering allowing a deferral of a payment, then you should consider what security you can obtain.  This could be in the form of a director’s guarantee, a fixed or floating charge or a lien over goods that you continue to supply.  Your solicitor can advise you on this and help you draft the necessary documentation.


Future Free Supplies


You may be able to direct a conversation around the theme of everyone being in this together.  Where you decide that a plea for more time to pay is genuine, then it may be better commercially to halt debt recovery and ask a supplier to give you credit for supplies it can make to you in the future when business returns to normal.  You will want to condense any arrangement into writing and your solicitor will be able to assist you with this.


#5 Chase For Payment


Where a customer does not pay bills, then all further work on credit terms should be suspended until the account is brought up to date.  Businesses should continue to send letters seeking payment of unpaid bills.  Furlough payments for businesses who furloughed their staff have now been paid and many businesses are back up and running as normal, so there is less need to exercise discretion for those customers who are still dragging their feet. A more intense approach to credit control activity at this time may yield more for less effort.


#6 Threaten an Insolvency Process


For corporate debtors, you can usually serve a statutory demand.  However, the UK Government announced on 23 April 2020 that there is to be a temporary ban on the use of statutory demands or winding up petitions where a business ‘cannot pay its bills due to coronavirus’.  A Corporate Insolvency and Governance Bill is due to be presented to Parliament to legislate for this. It has also made regulations which will prevent statutory demands being served to recover commercial rent until a tenant is at least 90 days in arrears.  Your solicitor can advise on any restrictions that may apply to your business.


#7 Recovery of Debt Using the Courts


The County Court Business Centre remains open and you can still use its money claims online service to issue court claims for unpaid debts be they commercial or consumer ones.  Where you want to claim money from a consumer (as opposed to a business), then you will have to comply with the debt pre-action protocol. Where a claim is defended by the debtor, then HM Courts & Tribunal Service has said that listing of these sorts of cases is not a priority for courts.  Courts are operating remotely and there may be a back log of cases to be seen. With this in mind, where an offer has been made to settle an unpaid bill that you might normally reject out of hand, then perhaps this may make it more attractive than it first appears.


Legal Advice on Business Debt Collection


For specialist advice on collecting debts for your business or support with a dispute that your business has with a supplier or customer then please contact our Dispute Resolution Team.


Call us on 01256 844888, email enquiries@lambbrooks.com or speak to our online chat assistant who can take details of your problem and put you in touch with a lawyer to discuss further.


Other Articles You May Be Interested in Reading:

How Businesses Can Prepare for a Second Wave

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Correct Furlough Claim Errors Before Deadline


The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice.  The law may have changed since this article was published.   Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.