March 19, 2025
Debt recovery can be a challenging process, whether you’re an individual or a business. Balancing the need to recover what’s owed whilst maintaining positive relationships with clients and customers can be delicate, but the right strategies can significantly improve your chances of success without the need to bring matters to the court.
Here are ten practical tips to help guide your approach to the debt recovery process before having to take matters through the legal system.
Know Your Client
Before offering credit or entering into your agreement, if possible, take time to understand your client’s financial background. Conduct credit checks and verify trading history if possible. This information will help you make informed decisions when entering into your agreement and will hopefully reduce the risk of non-payment or increase your prospects of recovering the debt.
Have Clear Terms of Business
Written and well-communicated terms of business set expectations from the outset. Make sure they include details about payment terms, interest on late payments, and your right to recover costs if debt collection becomes necessary.
Document Your Contracts
Verbal agreements often lead to misunderstandings. Having written contracts outlining the obligations of each party provide clarity and protection. This documentation can become vital if court action becomes necessary. Failing written documentation in which to rely on, a judge may only be able to decide a case based on the discussions and acting’s of parties. This could result in ambiguity and ultimately an unfavourable court judgment.
Register Agreements in the Books of Council and Session
In Scotland, certain agreements can be registered in the Books of Council and Session, making them legally binding and enforceable without the need for formal court action to be raised. This formal registration often helps in swiftly enforcing payment of debts, if required.
Consider a Personal Guarantee
In cases where you’re dealing with a limited company or sole trader, you could ask their principal for a personal guarantee. So long as this is properly set out and intimated to the guarantor (take legal advice before entering into this) generally it means that the individual behind the company/business would be personally responsible for the debt of their limited company/business. This adds an extra layer of security.
Raise Claims before the 5-Year Prescription Date
In Scotland, most debts prescribe (cancel out) after five years if no legal action is taken. There are some caveats to this but generally you should make sure to monitor dates and take legal steps before this deadline, or you may lose the right to recover the money altogether.
Keep an Open Dialogue
Communication is often the first casualty when debts remain unpaid. Maintaining an open and respectful dialogue can go a long way toward resolving the issue. A debtor is more likely to cooperate if they feel heard and respected rather than threatened or ignored.
Understanding the Impact upon Credit Scores
In most sheriff court actions, in the event a court order is granted against a debtor this can lead to the debtor suffering an impact upon their credit rating. The risk of this can often motivate payment. It should be ascertained early on if a debtor is aware of this potential impact. Otherwise they may continue to disengage in the debt recovery process under the mistaken belief that court action would carry no tangible weight against them.
Weigh-Up “Time to Pay” Arrangements
Offering a structured “time to pay” agreement can sometimes be more effective than pushing for immediate payment. This is especially so given the court may, on application of some debtors, allow debts to be repaid by way of monthly instalments. This should be a key consideration if the debtor does not appear to have the means in which payment can be extracted by the creditor in full. Within reason, this approach ensures at least some repayment is being made whilst possibly preserving the business relationship. Some debtors may be genuinely be unable to pay however and so legal action may be required to protect the creator’s position as last resort.
Contemplate Mediation
If discussions stall, consider a form of alternative dispute resolution such as “Mediation” before legal action. Mediation is usually a cost-effective and quicker way to resolve disputes with the added benefit of preserving confidentiality and relationships. Putting a case to mediation is something we are increasingly seeing sheriffs order in Simple Procedure actions (claims under £5000), so it makes sense to consider the possible benefits of mediation before court action.
Final Thoughts
Debt recovery is rarely straightforward, but a proactive and well-informed approach before legal steps are taken can reduce the need for court action, preserve the business relationship and improve debt recovery outcomes. By combining clear documentation, legal awareness, and open communication, you place yourself in the strongest position to recover what’s owed without burning bridges.
Find out more about our Debt Recovery services here.
| Scott Runciman Associate, Debt Recovery | ||||
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any information contained in this blog, please seek a solicitor’s advice from Gilson Gray.
