Dealing with Debt Management in a Post-Covid World

21 Jul

How you can support your clients to reduce their risk and resolve issues

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 pandemic, however, has 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. As we are entering a period where government funding is coming to an end and the safety blankets in place to prevent insolvency are to be lifted shortly, lots of businesses, and more pertinently debtors, will be entering periods of significant difficulty. It’s a critical time for our business partners and we’ve been exploring ways we can help.

Your clients may well have expressed concerns around debt management or be actively looking at ways to mitigate potential problems. Though no business can completely insulate itself from risk, we have identified four key areas that you may wish to consider with your clients in order to help protect their businesses 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

Bear in mind that the effects of the pandemic may well have altered your clients’ appetite for risk and as such it is a good idea to reconsider what debt management strategies might be palatable to them and their 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 your clients are keen to do, options include prepayment or staged payments for goods/services, credit limits and appropriate security, such as personal guarantees. Alongside this, they should have suitable protections in place in the event of default - interest and an indemnity for the costs of pursuing debt can strengthen any cost recovery. Another option for easing cashflow is factoring, which might now appeal to some businesses.

3. Be proactive on debt recovery and act quickly on issues

Key to debt management is being proactive and identifying problems early. Your clients 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 clients and business partners are forced to involve us on routine recovery matters.

How we can help

Supporting your clients to put 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 or your clients need further support, and that’s where we can help.

We are always available for an initial, no-obligation chat with our professional partners on specific issues or common challenges your clients face in the present environment. If your clients 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 your clients or contacts 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, free, pragmatic advice and, where our involvement is needed, we offer transparent fee structures and high levels of service from our experienced team.