Construction sector disputed debts & Credit insurance

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It goes without saying that the construction sector is one the worst affected for disputes, overdue payments, non-payments, deductions etc.

It has been addressed through The Housing Grants, Construction and Regeneration Act (construction act) whereby there are set deadlines for payment notices and pay less notices but, in my experience it is ignored by those who seek to profit from raising disputes, non- payment, deductions ETC.

It is a fact that even when you highlight the requirements of the Act it makes little difference to your serial debtor/disputer. In this instance, you have a few options: –

1.      Use the services of debt collection specialists, they can highlight the error of the serial debtor’s ways, make your case for you and generally, become a right royal pain in the backside for the debtor. The issue is that the debtor will probably continue to dispute and force you to either litigate or go to arbitration and that incurs costs.

2.      You could take out a credit insurance policy, at this point, I need to put my cards on the table and confess I have always been sceptical of credit insurance as it would not pay out on disputed debts.

3.      A few things are making me think again though: –

4.      One is having pursued what was a legitimately owed debt that was owed by a serial debtor (you know the type, get friendly insolvency practitioners, put the company under and start afresh as if nothing happened) via the courts who had admitted the debt was due, admitted works had been carried out very well, admitted they just did not have the funds to pay then, created a phantom dispute. Given the court found in our favour, all should have been fine. Not with Mr. Serial phantom dispute debtor type. He promptly “arranged” for the company to be placed in administration and he started again as if nothing had happened.

5.      As the client did not have credit insurance they lost a substantial amount of money and their legal costs. This on a debtor with a considerable track record of failed companies but, a debtor nonetheless the credit insurers were prepared to offer cover on.

6.      The point is, that as the debtor had created a phantom dispute, the client could not claim on credit insurance even if he had it. The only point an insurer would pay out was when the court found in the clients favour and getting to that point was expensive. Nonetheless, I expect the credit insurer would have paid out and that is one of the reasons I am thinking again about the value of credit insurance.

7.      The other reason comes back to the afore mentioned phantom disputes. I have been made aware that there is now a credit insurance policy which will cover disputes. As ever with insurance, the devil will be in the detail but, for those in the construction sector, it is well worth considering.

8.      I don’t know the full ins and outs of the policy as I leave that to the experts in the field of insurance but, a few points I noted were: –

9.      The requirement to appoint a debt collection agency and an obligation to assist them in order to obtain settlement.

10.  The insurer will pay out a percentage of the insured debt covered or a percentage of the credit limit. Clearly, you would need to consider the job value at the outset in line with the cover you could obtain. My favorite saying is insurers will not cover a house that is going to fall down. Likewise, they will not cover a potential customer who they consider to be high risk. This is something to consider, much as you won’t buy a house that is falling down, you need to consider if you want to work with a company that is perceived as high risk.

As ever with insurance, it can be a minefield, lots of terms and conditions, lots of small print and if you don’t have a contract in writing with your customer, don’t agree amendments in writing etc. Don’t be surprised if an insurer refuses to provide cover.

So, having said all that, would I recommend credit insurance? Well, it is apparent that as with a lot of other sectors, construction has a fair few rouges in it. It is getting more and more difficult to get paid never mind paid in full. If I was in the construction sector, I would most certainly be considering it.

For more information on this credit insurance policy for disputed debts, please contact Jim Sleith @ JMS Credit Consultancy and I will put you in touch with my man in the know!

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