October 16, 2023
Commercial debt disputes are a thorny issue for businesses, acting as a major roadblock to smooth cash flow, hampering growth, and potentially souring important business relationships. The fallout from unpaid invoices can be so severe that companies may find themselves seeking external finance just to keep operations running. Clearly, it's much more preferable to sidestep these disputes altogether rather than untangle them once they've emerged.
At the heart of avoiding debt disputes is the creation of robust, transparent agreements. Contracts that meticulously outline each party's rights and obligations go a long way in ensuring that customers are fully aware of their contractual duties and the repercussions of non-compliance. Alongside this, adopting effective invoicing strategies is crucial. Timely, accurate invoicing, supported by a comprehensive paper trail, minimises the chances for disputes. Automated billing systems that generate precise invoices and keep track of late payments can also play a significant role in maintaining a healthy cash flow and professional relationships.
Making sure customers understand their payment obligations from the outset can significantly reduce the likelihood of disputes arising. Any potential fees for late payments should be clearly stated in the agreement and communicated upfront.
Disputes over debts are not uncommon and can arise for various reasons. Some of the most frequent causes include disagreements over the quality or timeliness of goods and services, discrepancies between delivered and agreed-upon goods or services, and disputes over charges.
When faced with a commercial debt dispute, swift and decisive action is imperative. This involves reviewing the contractual agreement, gathering and preserving all relevant evidence, and assessing the debtor's financial situation. Identifying commercial objectives early on can also guide the approach towards resolving the dispute, whether it's maintaining a valuable business relationship or securing the owed amount as swiftly as possible.
When you're hit with a commercial debt dispute, it's crucial to act quickly and decisively to mitigate the impact on your business. Here's how to handle things from the get-go:
Your initial move should be to scrutinise the contract that outlines the deal between your business and the customer. A well-crafted contract is your roadmap here; it clarifies everyone's duties and the repercussions of not sticking to them. Make the contract your first reference point in a dispute, as it lays the foundation for your relationship and subsequent actions.
The strength of your position in any dispute correlates directly with the evidence you can muster. It's essential, then, to gather and safeguard all relevant documentation and information. This might include:
Remember, our memories aren't infallible. Documenting your understanding and observations as events unfold is invaluable, providing a clear narrative for your legal advisors and bolstering your case.
Chasing a debt from a customer without the means to pay is futile. It's wise to have performed a financial health check on your customer beforehand. However, financial situations can shift, especially in today's volatile economic climate. Before escalating the matter, ensure the debtor has sufficient assets to cover the debt. Starting with Companies House for initial records is sensible, but more thorough investigations might be necessary to get a full picture of their financial health and decide if pursuing the debt is economically viable.
Debt disputes become even more complicated when they cross international borders, introducing additional legal and practical hurdles. Most commercial agreements specify which country's courts have jurisdiction, but the process remains intricate, especially when enforcing judgements abroad.
It's crucial to act within the statutory time limits for chasing commercial debts, typically six years from the due date in the UK. Any delay can weaken your position and diminish the chances of recovering the owed sums.
Our subject expert: Fayola-Maria Jack
Fayola-Maria Jack is a multi-award winning deal shaping and dispute resolution expert. She has shaped successful resolutions and out of court settlements for governments, multinationals, military, banks, and venture backed startups.
