A critical juncture for debt recovery

This article was originally published by Jerome Doraisamy for Lawyers Weekly (7 October 2021).

When it comes to recovering what is owed to one’s clients, lawyers should be advising to “move early and move decisively”, said one partner.

If one speaks with any business owner, Bartier Perry partner Gavin Stuart mused, debt recovery would be near the top, if not at the very top, of a list of their least favourite tasks.

“Even the term ‘chasing debts’ has a negative connotation because it speaks to conflict,” he reflected.

“Add in the stress everyone has been under given COVID-19, and it’s very understandable that businesses have been even more reluctant to make this a priority in recent times.”

Regardless, he told Lawyers Weekly, it has “never been more important to have your own business in good health”.

A critical part of such business health, he said, is managing outstanding debts while being mindful of a customer’s potential position and circumstances.

In conversation with Lawyers Weekly, Mr Stuart said that lawyers have a “critical role” in assisting clients at this juncture.

“It comes down to tone and approach,” he surmised.

“An outstanding debt may signal or uncover a wider issue in the business relationship. Taking the wrong tone or approach may also destroy or damage your client’s relationship with one of their key clients. 

“So, as commercial lawyers, we take our clients through a number of simple steps as how best to approach recovering the debt in a constructive way. And, in 70 per cent of cases, we find debtors will pay after a single piece of correspondence.”

The biggest risk a business owner can take in the current climate, Mr Stuart continued, is to adopt a “wait and see” attitude.

“When it comes to recovering what is owed to you, move early and move decisively,” he advised.

“Proactive debt management results in more positive outcomes. That includes an outcome where you agree to payment terms that enable a client to manage their own cash flow issues. But we’d advise against clients using COVID as a reason to hold off debt recovery – you are only putting your own business at risk.”

When asked if there are any emerging opportunities for lawyers advising their clients in the wake of such issues chasing debts, Mr Stuart said that a lot of debt recovery involves simply passing it on for an external agency to recover.

“Putting aside the expense, that non-personal or potentially tone-deaf response to debt recovery can destroy a working relationship. I think lawyers stepping clients through a range of options or approaches and escalating only as and when needed adds a lot more value. Plus, we’d argue it’s a lot more cost-effective,” he said.

“One client had a portfolio of debts owed ranging from $450 to $65,000 but totalling $244,000. We recovered $221,000 of that at a cost of under $4,000. An opportunity for lawyers is to demonstrate their ‘big picture’ understanding of their clients’ needs, particularly as claims are raised as a reason for not paying.

“This will strengthen the relationship and lead to work outside the straight debt recovery space,” he submitted.

Ultimately, Mr Stuart concluded, the “key thing” about debt recovery in the midst of the ongoing global pandemic involves a three-pronged approach when businesses are under stress.

“First, don’t ignore the issue. Secondly, if at all possible, don’t destroy the working relationship in recovering what’s owed and be flexible in your approach. And finally, don’t assume it always has to be a conflict-driven process.

“Of course, there’s always going to be the recalcitrant dodging their debts out there, but we find surprisingly few of the matters we manage end in legal proceedings.”

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Bartier Perry has an online Debt Recovery Pathway to help clients navigate the most constructive and cost-effective way to recover a debt.