Due Diligence – A case in point

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Know your customer / supplier

I have written blogs highlighting the importance of “getting it right at the outset”.

I recently wrote one entailed Due Diligence- Due What? Why bother? that highlighted the problems you can encounter. (although it was the most extreme case I have ever seen of what can happen if you fail to conduct due diligence)

I just wanted to highlight this again as if you don’t do due diligence, don’t identify the legal entity and just issue a court claim, you may end up throwing good money after bad in terms of legal fees if you issue a claim against the wrong or non existent entity.

We have had clients who were advised on LinkedIn to issue a claim, consult a solicitor etc. They spoke to JMS Credit Consultancy, we reviewed the paperwork and discovered various problems with the entities. The client had a signed contract but it was signed on behalf of a company that did not exist! We also discovered issues with the clients’ terms and conditions which could prevent them from claiming interest, late payment compensation and collection costs in line with The Late Payment Regulations. We advised the client accordingly, we also advised on changes to terms and conditions in order to prevent the issue recurring in the future. this advice was provided free of charge.

If the client had followed the advice given on LinkedIn, they would have issued a County Court claim form against an entity that did not exist or paid a solicitor up to £230 per hour to consider the case, advice that they entity did not exist and not to issue a claim. They would then probably offer to review terms and conditions for a (not so) small fee!

The point is, if they had conducted Due Diligencethey would have picked up on the fact that the entity did not exist, they would have picked up on the fact that the director had two failed (dissolved) companies behind him and another which seems to be heading the same way. However, the client would not have picked up on the problems with their terms and conditions.

This is where a consultancy service excels and provides added benefit, we deal with the whole process start to finish, due diligence, review of terms and conditions, implementation or review of a credit policy. Too often businesses fail to see the importance or say they can’t afford it. I ask that you review our blog “Due Diligenceand ask how much is your business prepared to risk? Debt collection is not easy, it is time consuming and can be expensive.

Whilst due diligence, a good credit policy, strong terms and conditions etc. are vital, so is ensuring contracts are in writing and that any amendments are also confirmed in writing. It is also a good idea to record conversations, agreements etc. that are conducted in meetings, explain to your client that the purpose of the recording is to avoid any confusion which may arise later in terms of what was agreed and what was not. You can also download an app for your mobile phone to record calls, it is a good idea to advise the caller that you record calls. It is vital that you have as much information as possible to deal with disputed invoices, more so when the dispute is nothing more than a reason to delay or avoid paying.

It is also vital to chase overdue invoices promptly, this needs to be done in the correct manner and inline with your credit policy. It sends the wrong message to the debtor and they will ignore you if you send the same worded email / letter each week or whenever you have time to chase.

Get it right at the beginning, chase promptly (or outsource if you don’t have time) and you may well save yourself a lot of time, effort, stress and money!

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