#KDHAlert from our Henry Obunde on the basics of Debt Recovery and he answers the most common questions we receive on demand letters. Debt recovery is a complex and time-sensitive process that can be difficult to navigate. Creditors must be careful when stepping through the various debt recovery options which may be available to their business as they will depend on the circumstances and available options.
Partner at KDH Kenya | Commercial and Real Estate Transactions, Insolvency and Litigation
Facing unpaid invoices and outstanding debts is a common frustration for many businesses. Providing goods or services without receiving the payment owed can be a significant strain on cash flow and operations. Legally, a lot goes into debt recovery like demand letters, filing claims and judgments, and taking enforcement action. In some instances, we also explore how bankruptcy and winding up proceedings can impact debt recovery. Let's discuss where to start. A demand Letter. A demand letter is more than just a reminder, it is a formal communication that underscores the seriousness of the matter. When issued by a third party, such as a lawyer, it often carries more weight than repeated internal reminders from the creditor. This external involvement sends a clear message to the debtor that the issue has escalated, signaling the creditor’s intent to take further action if payment is not made. For a demand letter to be effective, it must be detailed and precise. It should clearly outline the debt amount, the basis for the debt, and the payment terms initially agreed upon. It should also set a specific deadline for payment and warn of potential legal action should the debt remain unsettled. Including accurate details about the debtor, such as their name, contact information, and legal status, whether they are an individual, a company, or another entity, is crucial. The more accurate the information is at this stage, the better chance of recovery, and less issues down the line if further legal action becomes necessary. A well-crafted demand letter ensures the accuracy of the claim, reducing potential complications if the matter proceeds to court. Beyond its role in urging payment, a demand letter also serves as a critical step in the legal process. Courts often consider sending such a letter an essential precursor to filing a claim. This demonstrates that the creditor gave the debtor an opportunity to settle the debt amicably before resorting to litigation. At any stage of the debt recovery process, exploring alternative dispute resolution mechanisms may be beneficial, especially if the debt is contested. Methods like negotiation, mediation, or arbitration can facilitate a quicker and less confrontational resolution. Depending on the amount owed, the nature of the creditor-debtor relationship, and other factors, it might be advantageous to agree on a payment plan or settle early. For many solvent debtors, avoiding a court judgment is a priority, as it can negatively impact their credit rating and business reputation. The demand letter is a cornerstone of effective debt recovery. It not only emphasizes the seriousness of the situation but also sets the stage for further action. By approaching the process with thoughtful deliberation and preparation, businesses can enhance their chances of recovering what is rightfully owed while maintaining professionalism and protecting valuable relationships. #DebtRecovery #Insolvency