Debt recovery – How should businesses tailor strategies during coronavirus

The Financial Conduct Authority (FCA) has recently announced the introduction of temporary measures, to directly support consumers facing payment difficulties due to the coronavirus (Covid-19) outbreak.

However, many creditors are themselves being hit by the challenges created by the current pandemic. This means that the support they can offer their customers before they hit financial problems is likely to be limited. Creditors must consider how to maintain their income at a time when many of their customers are struggling.

Specialist debt recovery lawyers at national law firm Clarke Willmott LLP say prompt and straightforward communication is key and that some thinking outside the box as well as professional advice may be needed to stay afloat during these unprecedented times.

Phil Roberts, head of Clarke Willmott’s debt recovery team, said: “Creditors are facing many challenges during the coronavirus pandemic. Some businesses have furloughed staff and do not have the capacity to contact debtors. Others have found that alternative working practices means they are so busy there is no time to consider outstanding debts.

“The intention behind the FCA’s announcement reflects the general approach of the credit industry and the willingness to help and support customers with debt where possible.

“Whilst many creditors are not bound specifically by the FCA’s direction, which in any case does not apply to business customers, the general ethos remains correct. Where possible, creditors should engage with customers to try to find solutions for the repayment of debt. Honest, sensitive and straightforward communication is likely to help both parties find a way forward.

“Creditors need to look to alternative arrangements that they may not have previously considered such as temporary payment breaks, payment plans, the freezing of interest or negotiating reduced balance full and final settlements.

“Recourse to the courts should always be the last resort, and now more than ever creditors should be mindful of the additional costs of court action and whether these will ultimately be recoverable. Where achievable, customer engagement and amicable settlement agreements are clearly preferable.”

However, where does this leave creditors whose customers are not willing to engage?

With current circumstances being far from usual, creditors may be reluctant to ask their customers for payment of monies owed. In turn, this may put their own businesses at risk.

Phil continued: “It’s important that creditors do not delay in asking for payment, especially as it can mean crucial conversations can begin sooner rather than later. More than ever, there should be a real focus on making prompt customer contact and engagement.

“There are some simple and obvious steps which can be taken. If you have email addresses and telephone numbers, then use these to contact customers in addition to standard lettering processes. If your customer is a business, a simple internet search could reveal whether they are trading or provide alternative contact details if the business is closed.

“Many businesses will already have procedures in place and the additional steps that can be taken to prompt customer engagement will vary. However, taking a pro-active approach will prompt a better outcome in terms of keeping cash flowing. If court proceedings become necessary, it will also provide evidence that the creditor has done all that could reasonably have been expected to obtain payment.”