News

Know your customer - who are you trading with?

28th September 2017

Company X Ltd began trading with Mr Y in 2010. The relationship began well with Mr Y placing regular orders and paying Company X Ltd in accordance with their credit terms. Over time the relationship begins to break down and Mr Y ceases to make payment of his outstanding invoices with increasing amount of late payments.

Company X Ltd attempts to make contact with Mr Y but to no avail. Company X Ltd then issues a court claim against Mr Y to recover the debt.

Mr Y files a defence claiming that payment is the responsibility of a limited company, Y Ltd, who went into liquidation just days before. Company X Ltd has no alternative but to lodge the proof of debt with the liquidators, however it is unlikely that they will see their money.

It later comes to light that Mr Y had contacted Company X Ltd some time ago to inform them that he was now trading through a limited company, Company Y Limited. Unfortunately, their records were not amended adequately and they failed to treat Company Y Ltd as a new customer or change trading/credit terms.

This all too common scenario (though hypothetical in this instance) highlights the fact that as a business, you should be exactly clear who you are trading with.

As you can see failing to keep your records up to date or accurate can be a costly mistake.

Protect your assets

In the scenario above, Company X Ltd was unable to recover its debt. If it had acted sooner against the limited company it may have had a greater chance in recovering the debts owed.

Looking further back, Company Y Ltd may have failed the account opening procedures resulting in the fact that Company X Ltd refused to trade with it or perhaps decided to trade on severely limited credit terms.

Issuing a Court claim incorrectly can also have cost consequences and cause substantial delays in getting payment. You may need to amend the claim and pay the costs involved. You may also be held liable for the Defendant’s legal costs for dealing with the application.

Know your customers

Your customers will generally fall into one of the following categories:

1.Individual

2.Sole Trader

3.Partnership

4.Limited Company

5.Limited Liability Partnership

Recent changes in law mean that the way in which a debt is collected will be procedurally different depending on whether your customer is a company or sole trader/individual. The Pre-action Protocol for Debt Claims (PAPDC) places greater emphasis on Claimants to provide more information and allow the sole traders and individuals more time before proceedings are initiated (click here to see our article on the PAPDC).

Higgs & Sons’ Debt Recovery Team will assist you every step of the way with your debt recovery requirements. We are happy to discuss and review the procedures you have in place that cover customer take-on, credit control and escalation.

To find out more about Higgs & Sons’ debt recovery services, download our latest information sheet, or contact a member of the team click here.

 

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