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Why you should know your customer when it comes to debt recovery

View profile for Martin Spencer
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When taking on work for a new customer, it can be hard to tell whether they will develop cash flow issues and be unable to pay your invoices. When it comes to debt recovery, it is vital that that you know your customer and exactly who your customer is.

You may not take on work with the expectation that you will not get paid but being prepared and ensuring that you know as much about your customer as possible, will certainly help you, and us to recover your debts.

Do you know who you have traded with?
Whilst this may seem like a simple question, it is extremely important that we are pursuing the correct legal entity from the outset. Your customer could be a Private Limited Company (LTD), Public Limited Company (PLC), Limited Liability Partnership (LLP), Sole Trader or Partnership.

When you take on a job for a customer, they may be putting pressure on you to provide the goods or services as soon as possible however, to protect your position, you should always ask your customer to complete a credit application or account opening form before you complete the job.

Once you have obtained this information, you can assess any potential risks for dealing with the customer and complete a credit check which will help establish the customer’s ability to pay. If a credit check reveals that the customer is subject to high risk of bad debt write off, we are not suggesting that you cannot work for the customer, but in these circumstances, we would recommend that you ask for monies to be paid on account prior to the work being carried out.

Why is this information important?
If you have provided goods or services to your customer, and they have failed to pay, you may well be looking for assistance to recover payment. The information that you should have obtained from the outset will help us advise on your prospects of success. There may be little point in incurring costs and potentially throwing good money after bad if your customer has a lack of ability to pay. Although we try to recover every debt owed to our customers, this is sometimes not possible if a company has closed or has a lack of significant assets that can be used as leverage to pay the debt.

Our debt recovery structure here at Roythornes, is a very cost effective and streamlined process which we follow from pre-action to judgment however, the real skill is being able to turn that judgment into cash for our customers.

Additional useful information when working for individuals
Enforcement is often needed to provoke a customer to pay but knowledge about your customer will help us consider which enforcement option is most appropriate.

  • Does your customer own their property?
  • Do they drive and potentially own a decent car that’s free from finance?
  • Do you have their bank details?
  • Are they currently employed?

We can check the Land Registry to establish the ownership of a property and have good working relationships with enquiry agents who can often check the employment status of your customer, but this does not get away from the importance of you knowing your customer at the time you carried out the work.

Additional useful information when working for Limited Companies

  • Consider asking your commercial customers to give personal guarantees. A limited company can quickly go into liquidation without warning. Please contact us for further guidance.
  • Ensure that you are aware of any trading addresses as well as the registered office address and think about what assets are available to leverage any judgment we may obtain.
  • It may be preferential to use insolvency methods if the debt is undisputed, as this can prove to be a quicker way to recover your money is certain circumstances.

If you require any debt recovery advice, please do not hesitate to contact a member of our specialist team.