Due Diligence – Due What? -Why Bother?

Due diligence why bother? If I don’t get paid I will start court action!

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We were recently asked to help a client recover a debt owed to them, all the information they had was a name, a mobile number and a billing address.

So, we took the debt on, started our investigations in to the debtors status etc.

We quickly established that there was no limited company under the name given to the client. This despite the debtor holding himself out to be the Managing Director.

We thought maybe he was using the title within a firm much as a solicitor may say they are the managing partner. We found nothing.

We then took to LinkedIn and the debtors profile stated he was MD and CEO (in the past) of other companies, we investigated and drew a blank, the name we (and the client) had been given had never been listed as a director.

So, going on the limited information we had, we had to assume the debtor was trading as a sole trader and chase the debt as such.

We started the collections process and soon hit problems, the mobile phone number for the debtor was “not valid”, the email addresses we had been provided with were free internet accounts rather than company domains.

We sent emails to the addresses we had, we sent “signed for” letters to the billing address the debtor provided, investigations showed there to be companies present at what appeared to be old railway arches, alas those did not appear to be the debtor we were after. (we are investigating if there is a link)

We conducted further investigations, had a “trace” carried out, this produced a home address, a mobile number and another email address.

After emails, letters, (to billing address and home address) phone calls, text messages etc. we were getting no response, then, the debtor made contact via WhatsApp, he quickly went silent again.

We had to consider our options, we had put a lot of time, effort and resource in to a relatively small debt, we could have suggested the client commence with legal action, but that may have been good money after bad. We recommended sending a solicitors letter at minimal cost whilst we continued with our investigations.

We then had a further “trace” carried out on the debtor to try and find further information on him.

The results of that trace and what we established afterwards was nothing short of staggering.

  1. The debtor used his first and middle names when identifying himself to the client. It soon became obvious why he did not want his surname known.
  2. We quickly established that the debtor had been a director of 14 dissolved companies.
  3. Found blogs on the internet of people being ripped off in 2006.
  4. Found that in July 2007, he was sent to prison for four and a half years having been convicted of 35 charges of fraud, theft and false accounting.
  5. Found he had been barred from holding company directorships for a period of ten years in 2008 at Manchester County Court. (note that some credit referencing agencies don’t list him as being a disqualified director)
  6. Found he was sentenced in 2012 to 12 months in prison after pleading guilty to four counts of theft, he stole £10,000 from his victims and “spent it”.
  7. We then found another report from July 2016, in which it was reported that he was sent to prison for a period of 21 months, on this occasion the debtor pleaded guilty to 10 offences of fraud.

One does wonder how the debtor managed to obtain further services and credit if he was jailed for 21 months in July?

The moral of this sorry story is that if the client had to listen to everyone on LinkedIn, he would have thrown good money after bad by issuing court proceedings.

The client came to JMS Credit Consultancywe took the case on a no win no fee agreement, despite time and effort we have not charged a penny. (In case the debtor is reading this we have not gave up on this debt)

So, getting back to the subject header.

Due diligence, why bother?

If due diligence is carried out it can identify these rouge traders.

In this instance, as mentioned,  the credit referencing agencies did not know he was a banned director (we have told them, let’s see if they update their records)  but 14 dissolved companies would have rung alarm bells.

Due diligence is not difficult, is not expensive, and need not take up a lot of time

  1. Identify your potential client before agreeing to provide goods or services.
  2. Get a new account form or credit application form completed.
  3. If in doubt over identity ask for proof.
  4. Check them on companies house. (If a limited company)
  5. Take credit reports and look at the directors past companies. (Credit Referencing Agencies hold records on partnerships although some have more information than others)
  6. Take references from other suppliers. (Be wary, they won’t ask you to contact someone who will say they don’t pay)
  7. If in doubt get payment in advance or walk away from the potential sale. It could save a lot of time, grief, heartache and money.
  8. Note that it is important to know what you are looking for in credit reports etc. If in doubt, if you don’t have that expertise, outsource your client on-boarding process.

Finally, ensure that you have a robust credit and collections policy / procedure in place and adhere to it. They are not expensive and irrespective of the size of your company they can save you time and money, reduce bad debts and this will allow you to concentrate on developing your business and concentrating on finding credit worthy clients.  (See our post, Sales, Marketing, Credit Risk)

Don’t leave it to chance, don’t say it can’t happen to your company, it can and in all likelihood it will if you don’t carry out due diligence.

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