Short Circuit Debt Recovery

When Advocate was contacted by a new client concerned about rumours their debtor was insolvent, their urgency and concern became our priority. Although relatively young compared to most firms in the industry, the client quickly became established as a producer, distributor and installer of electric motors, transformers and safety systems. The £27k debt was the balance owed by an electrical contractor, less the upfront deposit. Even with considerable support from investors funding the business through the early years, there was growing concern about when the debt would be cleared or if another round of funding was required.

Watts Up?

Specialising in electrical and data installations, the debtor still had a backlog of contracts to fulfil because of the pandemic and a growing customer base. This led to an unusual situation for the previously labour-self-sufficient firm – that of requesting our client come in as a subcontractor to ensure the scheduled works were completed on time. The debtor’s customers are normally constituted of factories and construction sites. For this contract, the end customer was a sports team competing in a single-seater motor racing series. Those in motor racing know only too well that downtime in the workshop and garage can ruin a season, potentially costing thousands of pounds in prize money. Appreciative of the urgency, our client attended the site to install new electrics and switchgear to protect the mechanics, machines, and software. With signoffs and certification done, our client invoiced the balance and expected to receive payment within the agreed 60 days.

OHMitting Payment

Unfortunately, reality fell short of expectations. Having billed equipment at cost price from stock, our client’s other exposure was labour amounting to roughly half the remaining £27k balance. Payment was never conditional on the end customer paying promptly, and even if that were the case, modest success in recent seasons suggested no issues in the team paying suppliers. The debtor greeted our client’s chasing with a wall of silence. Rumours of cashflow difficulties, redundancies and a queue of creditors prompted the client to contact and instruct Advocate where action was commenced the same day. Our analysis supported suggestions the company was struggling to keep up with payments. Adverse payment information had been recorded on the debtor’s credit file. A Notice of Insolvency Proceedings was issued for the £27k plus another £2k in statutory late payment charges. From first contact, the debtor acknowledged payment was overdue and advised they were hopeful of settling the now £29k before the seven days were up. Initially, we were told to expect several payments over several days. With the urgency reiterated a final time, full payment was received. With £27k in hand, our client no longer had the investor funding dilemma. We’ve since repeated the feat with other debt recoveries for the same client.

Rumour Has It

Rumours in the commercial arena have the power to collapse companies and crash economies. Responding too quickly or not at all can fell businesses that would otherwise have survived. In this case, our client’s gut feeling proved the right call. At the time of writing, the debtor is now subject to a winding up petition, and our client is breathing a sigh of relief having instructed Advocate before both businesses could short circuit.