Why Tracing a Debtor Is Important in the Debt Collection Process
Introduction
In every industry there are different types of transactions, and not all of them are paid for in advance. It’s common for businesses to offer credit terms, especially to regular customers, with invoices settled at the end of every month.
Every customer has their own credit limit which determines the value of the goods they can receive before they must settle their account. Depending on their history and their credit record, you may be willing to offer a generous limit.
This is all a normal part and parcel of running a business, but it does involve a certain amount of trust. You have to rely on customers settling their invoices at the end of every month and not delaying the payments which are due.
Unfortunately not all customers pay their invoices quickly, which can cause cashflow problems for your business. And some go further than a small delay, disappearing and moving address before paying what they owe. The discovery that a debtor has vanished can be very frustrating but there are options available to your business. Utilising a debtor tracing service enables you to track down the money which is owed to you, and take legal action if necessary.
But is it really necessary to trace the debtor to begin the debt collection process? Here’s everything that you need to know.
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Who Counts as a Debtor?
When you agree to provide goods or services which will be paid for at a later date, you become the creditor and your customer becomes the debtor.
A debtor is a term used to describe a customer who owes money to your business. When someone moves without paying their invoice, it’s common to use legal terms as these are what would be used if the matter gets referred to the courts. Individuals who may have previously been referred to as customers are commonly called by the legal term of debtors when they are being traced or the debt collection process is being followed.
Reasons Why Tracing a Debtor is Important
If there is a balance outstanding and the debtor has disappeared, tracing can help to ensure that you receive the money you are owed.
You may be tempted to not bother to trace the debtor, but there are many reasons why this is essential:
Issuing Legal Action
Some debtors unfortunately choose not to pay unless enforcement action is taken. This means filling in the paperwork and applying to the courts for a legal remedy that will force the debtor to pay what’s due. You can also often add interest and costs to your claim.
However, in order to take enforcement action against a debtor you must have their full name and current address. If they have disappeared and you don’t know their whereabouts, you may fail or suffer serious delays when trying to issue the relevant paperwork.
This is because without proof of a current address, the debtor may simply claim that they never received the notification. In addition, UK courts will expect you to be able to demonstrate that you have already made extensive efforts in trying to communicate with the debtor before bringing the matter to court. If you don’t have their correct address, the court will not accept that you have made genuine efforts. Communication that has been sent to the wrong address will not be accepted by the courts, even if the debtor moved without telling you.
Facilitates Speedy Contact
If the amount outstanding is very significant, the debtor may be very keen to avoid being traced. If they have the means to move around frequently, by the time you have manually tracked them down, they may have already changed address again.
Using a professional tracing service delivers fast results and enables you to get in contact with them, before they have a chance to move. As explained above, it will be essential to be able to demonstrate to the courts that you have sent communication to their correct address so speedy action is essential.
Acts as a Deterrent
If your business is very profitable, you may be inclined to focus all your efforts on current customers, especially if the amount that is owed is relatively small. However by using a debtor tracking service you won’t need to be distracted from your daily business, and can leave the tracing up to the professionals.
It’s important to ensure that all your debtors are proactively chased for many reasons, including to act as a deterrent. Word spreads quickly and if your debtor tells other people that you don’t chase debts, you may attract a disproportionate amount of bad debtors in the future.
And of course, your actions may have an altruistic element too - if a debtor discovers that they will be pursued through the court, they may not try to avoid payment again in the future!
Negotiate repayments
The most important thing is for you to get the debt repaid with the minimum of efforts and costs. Some debtors may have moved because their business is in difficulty, and they may not have the funds to settle what they owe. Tracing them provides the opportunity to pursue different types of debt collection options; this includes offering them a repayment schedule and re-negotiating how much they will pay and when.
You don’t have to offer a new payment schedule nor be flexible about repayments, but in many cases it’s in your interests to do so. This avoids dragging the case through the courts which never carries any guarantee of success if your debtor is in financial difficulty. Keeping the relationship amicable and trying to resolve matters informally is often the option which delivers the best outcome. When approached in the right way, only a small percentage of cases will need to go through the courts.
Using a Debtor Tracing Service
If an invoice is outstanding and the debtor has disappeared, you may be considering legal action. In these cases, it’s useful to have as much information as possible to help you make the best decisions for your business.
For example, if the debtor is in serious financial difficulty you may decide that it’s not worth your time pursuing the matter through the courts as they won’t have the means to pay. Alternatively, you may decide to lodge a claim with their insolvency practitioner if it looks as if the business is about to be dissolved.
The action you take may depend on the information you are able to receive. In some circumstances, you may discover that the debtor is in a good financial position, giving you more confidence in pursuing a claim against them.
There are many different types of people tracing or debtor tracing services, with varying degrees of information available. You can opt for a simple tracing package if you only want the basic information to enable you to communicate and potentially issue court proceedings.
In other cases you may prefer to order a more in-depth tracing agents enquiry which not only provides the address but also financial background searches, asset searches, liability searches and property searches. Professional debtor tracing services have access to a wide range of investigative resources which will enable you to get the information you need.
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