Debt Recovery is Not a One-Size-Fits-All: Why the Right Lawyer Can Help Preserve The Borrower Relationship
As a business owner, what matters most to you, between recovering a debt or maintaining a cordial relationship with the debtor?
If your answer is the latter, you have to be smart about debt recovery.
See, the debtor could be one of your trusted customers who has been paying debts on time, but all of a sudden, they are unable to. Or maybe this could be your long-time supplier or distributor who’s just stuck due to cash flow problems.
Other times, it’s a debtor who is deliberately being difficult, refusing to settle a debt owed.
Truth be told, when most people are owed money and the debtor is uncooperative, their first response is to call a lawyer to draft a demand letter.
Assuming that all lawyers are the same is the most expensive assumption in debt recovery.
From a commercial perspective, there is more to debt recovery than recovering your money.
Your lawyer’s approach could cost you more than money in the long run- you could lose a valued borrower, destroy a relationship with a reliable supplier, or ruin an affiliation with a strategic commercial partner.
In this blog, we examine the right approaches to recovering debt while preserving the borrower relationship.
Debt Recovery in Kenya: Preserving Business Relationships During Debt Recovery
If you’re a business owner trying to recover a debt in Kenya, you probably fall under one of the following categories:
- You are chasing an unpaid invoice from a major customer.
- You are a lender recovering a commercial facility.
- You are an enterprise whose distributor has fallen behind on payments.
- You are a supplier dealing with an overdue account.
- You are having a back-and-forth with a contractual counterparty.
In all these scenarios, your worry is not only how you can recover your money. Presumably, there are other concerns, such as how you can settle this difference and resume the commercial relationship with the borrower from where you left off.
A good lawyer understands this. They know well enough that debt recovery entails understanding the debt, the debtor, the relationship between creditor and debtor, the client’s objectives, and the available debt recovery options.
A good debt recovery strategy should consider the following factors:
- The value of the debt.
- The strength of the underlying claim.
- The debtor’s circumstances.
- Whether the creditor-debtor relationship is worth preserving.
If you’re owed money, you don’t have to resort to the most aggressive debt recovery approach when a more non-adversarial option is available.
Also, don’t choose a lawyer simply because they can recover your debt. Instead, choose a legal adviser who understands what recovering that money means for the rest of your business.
Why Not All Lawyers Approach Debt Recovery the Same Way
Consider two small businesses, each owed money by a different debtor.
Business A’s lawyer issues a demand letter to the debtor and suggests negotiation to settle the dispute amicably. Debtor A enters into a negotiation with Business A and agrees to settle the debt in the next 9 months using monthly installments. In 9 months, the debtor settles the debt and continues being a valued customer for Business A.
Then there is Business B. The lawyer chooses a more aggressive approach. In the demand letter, he makes it look like there is little to no room for negotiation, demanding payment in 4-12 weeks, failure to which legal action will be pursued.
The debtor feels ill-treated given their history with Business B, and decides to be uncooperative.
Despite the case ending up in the Small Claims Court, the dispute drags on and eventually, Business B loses both the money and the commercial relationship with the debtor.
In both cases, debt recovery is a key goal. Preserving the relationship is another, although not necessarily in competition with debt recovery. A good lawyer can help you achieve both by choosing an appropriate strategy.
A Smarter Commercial Approach to Debt Recovery
What is the commercial thinking behind debt recovery for a business in Kenya?
Start With the Relationship, not the Dispute
Before you formulate a debt recovery strategy with your lawyer, think about the following:
- Who is the debtor? A long-standing customer, supplier, or distributor?
- Is the failure to pay the debt persistent or temporary?
- Is there value in maintaining the commercial relationship with this debtor?
Your answers to these queries will shape your recovery strategy.
Negotiations Can Sometimes Recover More Than Confrontation
While a formal demand letter remains an important tool in debt recovery, it doesn’t need to be confrontational. Creating an environment where the debtor feels free to negotiate may encourage voluntary payments.
Furthermore, allowing the debtor to make payment arrangements is fair where cash flow is the root of the financial dispute. Maybe your long-standing business partner or customer is facing some cash flow issues and is more than willing to repay your money once cash starts flowing again.
And lastly, settlement negotiations aren’t comparable to prolonged legal disputes. With litigation, the case is likely to take time due to the backlog of cases in court. But with negotiations, you can reach a mutual agreement in a short time. In addition, negotiations are largely private and low-key, causing minimal to no commercial disruption.
When Formal Enforcement is Necessary
Negotiations work when both parties, and mostly the debtor, honour their promises. That doesn’t always happen. Sometimes, a debtor will:
- Refuse to engage.
- Continually break the promise to pay.
- Delay the repayment, causing a greater financial exposure.
- Stop all communications despite agreeing to repay in earlier negotiations.
This is where litigation and other formal recovery strategies become a necessity, and a conscious commercial decision.
Does the Borrower Relationship Always Matter?
Not really. It’s not always wise for a business to put the borrower relationship first. Preserving the relationship only matters when:
- The borrower/debtor is a long-term customer or business partner (High customer lifetime value).
- The business expects to continue working with the borrower commercially.
- The dispute seems resolvable depending on prior engagements or communication.
- The dispute arose due to cash flow problems, but the borrower’s core business/source of income is strong.
On the other hand, it’s not a wise business decision to preserve the borrower relationship in the following circumstances:
- Chronic non-payment- it’s not the first time this business or individual is defaulting on a loan.
- The borrower is lying about their financial situation and assets.
- The debtor lacks a genuine intention to honour their financial obligations.
- The continued delays in settling the debt puts your business at risk.
As we said earlier, preserving a relationship with a borrower can be important, but it should not come at the expense of recovering the money you are owed. Find the right balance. Consider the cost of recovering the debt and whether the customer is valuable enough to your business to justify protecting the relationship.
Final Thoughts
Strategy matters when it comes to debt recovery in Kenya. Choose a lawyer who understands that a successful debt recovery is more than recovering the money owed. They understand that how well the outcome serves the business going forward is also critical.
At Waren Law, we adopt a commercially focused approach to debt recovery. Our corporate debt recovery team helps you pursue outstanding debts while keeping the broader commercial objectives in view. Our mission is to help you make informed decisions that protect your financial and business interests, whether that involves negotiation, settlement, or formal enforcement.
Contact us today to start your debt recovery journey
