Dealing with Debt Management in a post-Covid World

7 Minutes

Four key areas that you may wish to consider to help protect your business during this period of economic uncertainty

Businesses have historically managed their debt by adopting a sound ‘business as usual’ strategy, appropriate to the needs of their customer base and the market in which they operate. The last couple of years have however unleashed widespread financial distress affecting businesses and consumers alike and brought the problem of debt management very much to centre stage. And this does not look set to improve any time soon. Government funding has largely come to an end, the safety blankets in place to prevent insolvency are being lifted and there are numerous other economic pressures on businesses, leading to increased risk of default on debts. It’s a critical time for businesses and we’ve been exploring ways we can help.

You may well be looking at ways to mitigate potential debt management problems. Though no business can completely insulate itself from risk, we have identified four key areas that you may wish to consider to help protect your business during this period of economic uncertainty:

1. Review Standard Terms of Business

It is the perfect time to dust down and review standard terms of business, looking to maximise contractual protection and specifically to manage risk. For debt recovery, it is well worth considering appropriate dispute resolution provisions which can lead to quick and suitable enforcement without unnecessary red tape. In certain instances, retention of title clauses or liens might be appropriate, as well as the ability to suspend performance or terminate the contract. We recommend that you take these options into account if you are reviewing contracts.

2. Revisit and review Debt Management Strategies

The effects of the pandemic may well have altered your appetite for risk and as such it is a good idea to reconsider what debt management strategies might best suit you and your customer base/market. Many businesses have seen a change in their financial position and, understandably, the general trend seems to be that people are imposing more cautious policies to de-risk debt and improve cashflow. If this is something that you are keen to do, options include prepayment or staged payments for goods/services, credit limits and appropriate security, such as personal guarantees. Alongside this, you should have suitable protections in place in the event of default – interest and an indemnity for the costs of pursuing debt can strengthen any negotiating position.

3. Be proactive on Debt Recovery and act quickly on issues

Key to debt management is being proactive and identifying problems early. You should avoid making a bad situation worse by extending further credit and/or delaying recovery action. When recovering debts, we as litigators know that a quick and assertive approach will yield results, with delay often only worsening a debtor’s financial situation.

4. Ensure Debt Recovery Processes are fit for purpose

It is imperative to have proper processes in place to chase down debts – processes that ideally don’t require lawyers! For most businesses, debt recovery can and should be run effectively in-house and external help should be limited to strategic advice or particularly difficult problems. In-house teams seldom need more than clear processes and standard documents, such as letters, Statutory Demands and Claim forms to apply pressure and achieve good recovery rates. It is not in anyone’s best interests if businesses are forced to involve us on routine recovery matters.

How we can help

Putting in place appropriate terms and proactive strategies will prevent most problems and help sustain a healthy balance sheet. It is a very good example of how investing time and money right now will pay dividends in the long run. However, there will be times when you need further support, and we are available to help.

We are always available for an initial, no-obligation chat on specific issues or common challenges you face in the present environment. If you are having problems with debt management or simply want to proactively plan better and you think a litigator’s intervention may be useful, please do contact us. We’ll be happy to help.

Through the pandemic, no doubt as a result of increased economic pressure, we have also seen a material uptick in shareholder disputes (which naturally require careful management) as well as an inevitable increase in contract disputes and debt issues. Other challenges, such as unlawful threats posed by competitors and ex-employees, have continued unabated. If you face any of these situations and you would like a litigator’s perspective, please do get in touch and we would be delighted to discuss. We are proud that we are able to resolve a good number of problems with some early, pragmatic advice and, where our involvement is needed, we offer transparent fee structures and high levels of service from our experienced team.

Key Partner contact details:

Alistair Stewart

call: 07869 435226

Richard Loney

call: 07940 214020