Steps for company owners to navigate debt collection

If you are operating a business, it is important that you have systems in place in respect of debt collection.

Cash is necessary for the financial wellbeing of every business and if customers or creditors of a business are not paying on time or refusing the pay, the business will be under immense pressure and business will struggle to survive without sufficient cash flow to meet its expenses and debts.

Firstly, it is imperative that record keeping is kept in respect of any debts owed to the business. Ideally, where goods or services are sold to a third party, an invoice should be issued and you should keep a record of all outstanding invoices.

If you are a business and you are engaging in services and in particular professional services, it is also advisable that you should send a quotation as to what your costs are going to be. This is immensely important as if there is a dispute later on in respect of the cost of the works, this quotation can be relied upon.

It is also worthwhile keeping copies of all correspondence whether by email or hardcopy with any debtors who you have supplied goods to or with any clients of the business who you have provided services or worked for.

Again, we reiterate in respect of clients that you have provided the service for, it is highly advisable that you send a quotation before you begin the works and ensure that the quotation is agreed with your clients. If an exact amount cannot be agreed or ascertained initially, it is worthwhile providing an estimate as to what the likely costs will be and you should make provision in respect of any quotation that the price may vary if further works that are not originally envisaged are required.

In respect of a debt, before engaging legal representation you should consider the other available options such as attempting to engage with the debtor or client by telephone or correspondence or by any other means of communication and attempt to secure payment of the outstanding debt by amicable means if possible.

Consideration also should be given as to whether or not taking legal action is cost-efficient and as to whether the debtor potentially has funds to repay the debt. For example, it may be worthwhile carrying out a land registry search against the debtor to ascertain whether they own any lands or property that a Judgment Mortgage can be registered against.

If you are not able to recover the debt by these methods, it is recommended that you should take legal advice and you may need to instruct a solicitor and they can advise of your potential options. Normally a solicitor will send initially a letter of demand to the debtor asking that the debt is paid within a timeframe or court proceedings will issue.

Typically a solicitor would threaten court proceedings if the debt is not paid within 21 days.

If the debt is under €15,000.00 the proceedings will be heard in the District Court and if it is above that it is heard in the Circuit Court. If the debt is over €75,000.00 it is dealt with in the High Court.

There are time limits in respect of bringing debt claims which are set out in the Statute of Limitations Act 1957 and the statute is normally 6 years from the debt accruing. If the debt is not settled after the initial letter of demand, you will then need to bring court proceedings in order to seek a judgement for the debt owed from the court. The debtor may defend the proceedings and if the matter is defended it will proceed to a court hearing unless agreement can be reached between the parties.

Typically a solicitor would threaten court proceedings if the debt is not paid within 21 days

If you succeed in obtaining a judgement against the debtor, the next step is to enforce the judgement.

The main methods of enforcement are as follows:

• Installments Orders followed by Committal Order;
• Execution against goods;
• Attachment of Debt/Garnishee;
• Mortgages.

An Installment Order is typically where the court makes an order that a debt has to be paid off in installments. The court will normally ask the debtor to provide a statement of means setting out what their assets, income, liabilities and expenses are and based on this they may make an appropriate Installment Order. The order can either be made by the court or could be agreed by consent between the parties.

In the event that such an order is breached, there is a possibility for applying for a Committal Order. You can also apply for an Execution of Goods Order and this is normally sent to the Sheriff or the County Registrar to enforce the judgement.

They have powers to cease the property or goods in order that the Judgement can be executed. If a debtor owe money to you and another person owes money to the debtor, you can apply for an order which attaches the debt owed to a debtor by the other person. This is known as a garnishee order. Generally, it is used only in cases where there are no goods to be seized to satisfy the judgment.

If a judgement is obtained against a debtor, you also can register a charge against any property that they own. This is known as a Judgment Mortgage and it is the equivalent of a mortgage on title and can be registered as a burden on a folio in respect of the debtor’s land. The debtor will have to pay off the judgment mortgage when the property is sold.

In summary, it is advisable to keep records in respect of any debts and have a system in place in respect of debt collection including issuing quotations, contractual documents and invoices.

If debts are not paid it is advisable to consult a solicitor who may need to bring the appropriate court proceedings with a view to obtaining a judgement against the debtor. If you are a business it is worthwhile engaging a solicitor to assist you with all your debt collection matters as debtors will be more inclined to pay a debt if they are threatened with court proceedings. However, to maintain business relations with your customers or clients, you should initially attempt to settle the matter amicably.

Stephen Coppinger is a solicitor practicing in Walsh & Partners, Solicitors, 17, South Mall, Cork.