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How Contracts Can Help Recover Debts

As a business owner, you’re likely to have several contracts relevant to your business.  A good, transparent contract can help to establish and regulate your business relationships and aid your business in maintaining a steady cashflow.  A clear contract also has a role to play when it comes to recovering debts owed to your business.

One of the most important issues when it comes to the recovery of debts is to do due diligence and put in place measures that will help you to avoid dealing with potential debtors in the first place.  Adopting the use of using a comprehensive contract can help you to filter out clients who may become “nightmare clients” for your business, as just the mention of having to sign a contract could be enough to scare them off.  This is no loss to you, in the long term, after all, your business will be better off dealing with good clients, not clients who have a habit of paying late – or worse still, not paying at all.

Unlike a more informal arrangement, a contract serves as an explicit commitment on behalf of both parties and nobody will be willing to sign a contract unless they have confidence in their willingness and ability to pay invoices in a timely manner.  Any potential client who is reluctant to enter into a contract should be avoided as this is one of the warning signs of a problematic debtor.

Debts sometimes arise as a result of a misunderstanding of the sum or payment date.  A contract will help avoid this as the specific payment terms can be included.  Doing so will avoid the risk of future disputes of payment amounts and times. 

Entering into a contract means that you have an opportunity to collect details from your clients so that you can determine their credibility by running a credit check.  This information will also prove useful should problems arise in future – you won’t have to worry about a non-paying client “vanishing from the face of the earth” as you will have contact details which can help you to find them.

A contract is likely to be your new best friend should any legal disputes arise in the future.  When attempting to recover debts from clients, it’s always better to avoid the courts if possible, but there are times when legal action really cannot be avoided.  A solid contract will be essential in such cases because if you take a non-paying client to court, it’s your responsibility to prove the existence of the debt.  If your debtor is disputing your claim, producing a contract can be vital to secure a verdict which is in your favour.  Without being able to do so, you may have no access to legal remedial action to recover the money owed to your business.