Can’t pay or won’t pay: the debt collector calls

Debt collection; Last month debt-advice charities called for greater professionalism from collection agencies. Victoria Hartley asks Paul Snook, chairman and founder of award-winning commercial collection firm Largo, about the industry.

With hundreds of companies failing or struggling with debt, business must be booming for debt collectors? “Last year was certainly a busy period. We all witnessed well-known brands and others falling foul of the credit crunch. Nobody enjoys hard times but an effective insolvency regime is a prerequisite for a sound economy. In the UK alone over 21,000 businesses fail every year but a high level of new companies also rise from the ashes. There has always been a high demand for debt collectors both in a strong economic cycle and a weak one”.

Collecting debt is not easy. How do you protect your clients from reputational damage to their brand? “Most importantly we agree a debt collection strategy with the client if we think there might be any serious risk. We approach debt recovery by using a blend of letters and telephone campaigns based on negotiation over the phone. We are compliant with all guidelines and regulations set by the Office of Fair Trading (OFT) and also operate under the best practice guide set out by the Credit Services Association (CSA). Our brand is very important to us and we would never risk a client’s reputation by making unregulated threats.”

Pound for pound, what kind of collection rate do you get back for your clients? “We have an intranet system called Review Web Collect, which clients can log into and see how much has been collected. But unlike the telephone-based volume call approach of consumer debt collecting, unravelling complex commercial debt cases is a more intricate process and can sometimes take years. This makes it hard to offer exact figures and those figures also vary from client to client.”

When is it better to approach a debtor in person and when is legal action more effective? “The initial skill is separating out the ‘can’t pay’, from the ‘won’t pay’. While our first duty is always to our client, we often try to adopt a facilitative approach when dealing with debtors. If a debtor or company is in severe financial difficulty then we try to find a solution that works for everyone. Litigation is always a tool of last resort.”

What percentage of your clients wants to threaten legal action first and ask questions later? “I wouldn’t recommend this strategy to any client. We nearly always work on a contingency or pay-per result basis and charge a percentage of the funds we recover. This way the client sees good value for money in a much shorter timescale. We send a letter before action giving seven days to make payment. This gives the debtor plenty of notice prior to the instigation of legal proceedings. We would expect debtors with genuine disputes to explain what their reasons are for non-payment. Then, if the clients want to, he or she can pursue litigation.”

If UK firms need a debt collection service, what key questions do they need to ask candidates for a professional result? “I think there are a few important things to look out for. Firstly, does the company hold a current and valid OFT license? Is the company a member of the CSA? Can the firm offer you case studies and client testimonials? What measures does the firm have in place to ensure compliance with the Data Protection Act? If it’s necessary to instruct a third party agent, what measures do they have in place to ensure they are compliant and do not use unorthodox methods? How often does the staff get training or refresher courses on legislation? Lastly, does the cost proposed give you value for money?”

The Sunday Times March 28th 2010.  Article by Victoria Hartley.