When a customer consistently fails to pay, a business faces a choice: escalate legally or seek a commercial solution. Bad Debt Recovery: Legal and Commercial Routes lays out the trade-off.
Why the choice isn't obvious
Legal steps offer formal pressure and the possibility of enforcement, but cost time and money, and almost always end the customer relationship. A commercial solution — a payment plan, partial write-off, or adjusted delivery schedule — can produce faster results and preserve the relationship, but offers no guarantee of full collection.
When legal is the better route
Legal escalation fits better when the customer relationship is already over, when the amount is substantial enough to justify the cost, or when there are clear signs the customer can but won't pay. In these cases, a commercial solution often just postpones the same problem.
When commercial is the better route
A commercial solution is preferable when the customer is genuinely in temporary liquidity distress but structurally solvent, when the relationship holds strategic value for future revenue, or when the amount is too small to justify legal costs. The distinction between can't pay and won't pay is decisive here.
Practical: determining the right route
The choice between legal and commercial requires a structured assessment per file.
- explicitly distinguish between "can't pay" and "won't pay" before choosing a route.
- weigh the cost of legal escalation against the outstanding amount.
- assess the strategic value of the customer relationship for future revenue.
- document attempts at a commercial solution as preparation for possible legal steps.
- set a clear deadline for when a commercial attempt escalates to legal.
What CreditCraft adds
CreditCraft helps structure the trade-off between legal and commercial routes, so the choice is based on the specific situation instead of a standard procedure.
Conclusion
When do you choose legal steps, and when commercial solutions? The answer depends on the nature of the problem — liquidity versus unwillingness — and the strategic value of the relationship, not on a fixed rule.