With the credit crunch biting hard, the harsh reality is that businesses are at risk of going under if others fail to pay them, says Shergroup, the UK’s leading legal services company specialising in enforcement.

Hundreds of thousands of pounds is written off in bad debt throughout the country annually but Claire Sandbrook, Chief Executive of Braintree-based Shergroup, says there are simple guidelines business bosses should follow before offering credit.

Mrs Sandbrook, a solicitor who has worked in High Court Enforcement for more than 20 years, says: “Creditors who have gone through the courts and received a judgment in their favour get upset at not being able to claim back the debt, which a very complex chain of credit management failed to collect. But credit granters should be much more cynical and view every new customer as a potential judgment debtor.”

Sherforce, the enforcement arm of Shergroup, often comes across businesses that are unable to pay their debts because others have failed to pay them.

By asking a few questions before offering credit, a business can assess the credit risk and the chances of enforcing any resulting judgment against the debtor.

Mrs Sandbrook says: “Customers can be categorised into individuals in the home, sole traders, partners, companies and unincorporated associations.”

“Using standard credit-industry tools, it is possible to verify information about limited and non-limited businesses and to cross-check addresses, credit references and telephone records for individuals in the home before offering a penny in credit.”

Mrs Sandbrook says some debtor types may have a home address and a commercial trading address, but decision makers should anticipate or ‘visualise’ the potential assets in either.

She says: “We make it our business to find out where debtors’ assets lie but it is much easier for the credit granter to establish where these assets are from the outset.”

“At the home address there may be a vehicle and goods, whilst at the commercial address there may be office equipment, stock, or plant and machinery.”

In assessing what assets a debtor might have, the credit granter should consider any available equity in property, money owed to the debtor, salary payments, or whether they need more information. Our management information shows that seizing business equipments such as computers, fax machines, and board room tables along with stock create the biggest opportunity for creditors to be repaid.

For a sole trader, enforcement options for recovering debt are:

instructing bailiffs to remove goods at the house (difficult but not impossible), or business unit (easier)
assessing what equity is available in the home
assessing what debts might be owed to a judgment debtor, ie bank account, trade debtors
making the debtor bankrupt where there is no defence
seeking an order to obtain information on the basis the creditor is unsure of what assets are available

Mrs Sandbrook says: “In building this type of checklist the credit granter takes control of enforcement, rather than reacting to the need to enforce a judgment using execution against goods as the ONLY method of enforcement.”

“Before you offer a line of credit ask your potential debtor some standard questions: do they own their own home? What is its value? What is the value of any outstanding mortgage on the property and does anyone already live there?”

“Suddenly, you know whether that customer has equity in their home, so in the event of default, and possible litigation, a Charging Order on the home is an option should enforcement become necessary.”

Shergroup is one of the leading providers of outsourced business services, specialising in enforcement, security, legal services and IT solutions. For more information about Sherforce, call 0845 890 9204 or e-mail [email protected]