Debt Relief Orders (DROs) provide a way-out for consumers to clear their debts without having to file for bankruptcy. The conditions are that the debtor must not owe more than £15,000, and they should not own more than £300 in assets or have a disposable income that exceeds £50 per month.
With the government’s review of DROs beginning in August 2014, eligibility could be relaxed allowing more people to apply. With almost 30,000 DROs being arranged each year already, the potential increase in applications could impact on small businesses collecting debts from consumers.
In the case of a DRO, the debt is typically wiped completely within 12 months of the order being raised and it’s true that in most circumstances the creditor will not get paid.
So is it worth pursuing the debt at all?
Well, yes and no.
Whilst you can’t recover money without permission from the court, there are instances where you could still be entitled, as the supplier, to have your invoices paid by someone who has been previously granted a DRO.
A DRO is only in effect whilst the conditions of the debtor remain the same. If within the 12 months, your debtor’s disposable income increases, or they fail to provide the requested information to the official receiver, the DRO will be automatically cancelled and the debt will become payable again.
That said, you can’t chase the debtor during the 12-month period with anything more a statement of account in the post. If the debtor’s situation doesn’t change within that time, you will unfortunately need to write your debt off.
Is there anything else you can you do as the supplier?
As with all debt collection, the answer lies in prevention rather than cure. Cash flow will always be healthier if you can avoid serious debts happening in the first place. By carrying out thorough checks before credit is granted, and by keeping up-to-date records and regular communication with everyone who owes you money, your accounts team should be able to foresee problems before they get to this stage.
By maintaining strict payment terms, you should be alerted to anyone who can’t adhere to those terms. In those situations, you should quickly ascertain what the reasons are for delayed payment. If your debtor is struggling to find the cash to pay, you should have measures in place within your terms to accept payment plans to clear debts in installments. This will prevent a lump sum debt being left unpaid if your debtor applies for a DRO or IVA.
For more advice on debt collection, visit the P&J blog.