How not to recover a debt: A best practice case study

A case study in how not to recover a debt

Debt recovery best practice tips

Articles
Daniel Fletcher | Thursday, 27th October 2022

AYOM has a long-standing collection process. Depending on several factors, we chase debts in specific ways. We take a holistic view to ensure the best result. Some believe taking matters into your own hands will be faster. They also feel being very heavy handed is the best method. This isn't really the case as a recent personal matter highlighted.

Taking debt into your own hands

In August, a man from Wrexham sought to recover a debt. The debt was a personal matter amounting to £30. Mr Clewey who was owed the money decided to pay a visit to his debtor. He decided to enter his debtor's house (via a window) to demand payment.

He demanded payment upfront which his debtor did not have to hand. He instead snatched an Xbox. He claimed to the debtor that the Xbox covered the £30. During the exchange Mr Clewey also cracked a TV screen and threatened to slash his debtor's throat. Out of pure fear, the debtor agreed, and Mr Clewey took the Xbox (valued around £200).

After the incident, Mr Clewey was arrested when the police were called. They attended his house and found the Xbox alongside some wraps of cannabis. He was later sentenced to 2 years detention in a youth offenders institute. 21 months of the sentence was for robbery and 3 months for activating a suspended sentence for dealing cannabis.

How not to collect debts

The above case study is a great example of the wrong way to collect a debt. Through years of handling debt matters, professional and personal, we can see where Mr Clewey's shortcomings were. Let's look at some critical mistakes in recovering this debt.

No mediation

Mr Clewey took it upon himself to enter his debtor's property and demand payment. While demanding payment in person isn’t a problem, it seems he didn’t make any attempt to mediate. To get the best result, a paper trail of communication will help. This is especially important if the matter gets escalated. Many debtors can be reasoned with and want the debt out of the way. The best way to achieve this is to talk about it:

What is their situation?
What is the debt about?
How much is it?
How old is it?

Keeping a debtor communicating is important for keeping a debt active. After 6 years, a debt which is not actioned legally with no acknowledgement becomes "statute barred." If a debtor is acknowledging the debt and communicating, this stops this happening.

Affordability assessment and repayment plans

Mr Clewey's debt was £30. £30 may not seem a lot to many but we must look at his debtor’s situation. The debtor may already have other debts, they may be unemployed or bankrupt. Perhaps negotiating a repayment plan would have worked best for both parties.

Depending on the debtor's financial situation, a payment of £5 per week or £10 per month may have meant both parties resolved the matter without it resorting to breaking and entering. While we always would like a debt to be paid in full, ASAP, it isn't always possible.

AYOM always assesses the debtor's position before we start our strategy. What type of debt is it, are they financially able to pay in full or is a payment plan necessary? Where possible, a solvent and able debtor will be asked to make either full or larger payments.

Xbox One Video Game Console in Close Up Photography — Xbox One Video Game Console

Applied interest unfairly

Interest in debt can be a prickly matter. Generally, the only interest which can be applied relates to a 1998 Act. The "Late Payment of Commercial Debts Act 1998" sets out what statutory interest can be charged. This is only in relation to commercial debts. Usually, a debt between 2 individuals can only have interest applied after court action. The same applies to an individual owing a business.

In this case, the Xbox was not a true reflection of the £30 owed and no interest was agreed by the parties. As such, a £200 console was too high a demand to make. When dealing with debts, we always assess whether interest plays a part. In applicable cases, the creditor can add debt collection charges because of them being forced to consult a debt recovery agency. This is a reasonable step if the recovery has already taken too long.

It is always best to seek advice when looking at additional charges on a debt. AYOM are in a strong position to advise on what can and can’t be added. From there we can act on this and apply charges where appropriate.

Entering without a warrant or escalation

The most pressing matter in this case is entering the debtor's property. Mr Clewey broke in through a window and threatened his debtor. Unfortunately for Mr Clewey, the law does not take kindly to threats of violence and entering property without a warrant. That is a matter for escalation, including the removal of goods.

It is possible to escalate these matters. A creditor can take the debt to court and seek high court enforcement. This is when officers can attend a property and even force entry. From there they can take property worth the value of the debt and their costs.

AYOM's ideal scenario stops the matter before this even becomes a thought. Escalating the matter, sending agents, and increasing your initial cost is a last resort. Many debtors will negotiate well before this is necessary. With a plethora of communication options available, we can establish a line of communication and engagement without resorting to breaking and entering.

Do things correctly

If you have a debt which needs recovering, make sure it’s collected properly. While this instance may be an extreme example, there are plenty of opportunities to learn from it. It highlights what needs to be considered when collecting a debt. Even a personal debt of £30 can have debt recovery strategies applied to it.

We always advise seeking assistance when unsure about a debt. Every debt is different and consulting a debt recovery agency can help put your mind at ease. Whether your debt is B2B, B2C or a personal matter, advice is available.

If you’d like advice on tackling a debt or looking at collection, AYOM can assist with all manner of debts. With a history of positive results, we can ensure the best outcome for you. We have methods for all debt types and escalation options. We can even offer more best practice tips.

To get in touch with an expert, you can email enquiries@ayom.co.uk or call 0800 130 3357 for more information.