James Walker: Let buyers beware when retailers go to the wall

Paying by credit card is safest.
Paying by credit card is safest.
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It’s a challenging time for businesses, from the restaurant up the road to the big high street retailers. According to recent research, around four in ten small businesses will not survive five years – which is a good reason to support your local retailers where you can.

But the past few years have seen some pretty big names bite the dust too. So understandably, lots of the people I speak to are concerned about what happens when a business goes bust when you’ve paid them money but haven’t got what you purchased.

Here’s a quick overview and a few tips to give you a bit of reassurance when making a purchase.

Boom or bust?

Liquidation is when a business is the process where a business is “wrapped-up” and its remaining assets are redistributed to the people and other businesses it owes money to. It’s a very bureaucratic procedure with lots of rules governing it, but it can take some time – and a business can cease trading or be sold on without having to file for liquidation. It also can go into administration – which basically involves bringing in people to keep the business running and help it survive.

When a firm goes bust owing you money or goods, then you join a queue of people known as creditors. You’re last in the queue for cash, and in practice, once investors, insolvency fees and employees have been paid, there’s often little cash left.

Dodging difficulties

You can’t ever guarantee that a firm won’t go bust, but here’s a few simple tips on how to shop so you’ve got more rights:

◆ Pay by credit card. You’ve got lots of statutory protection if you pay for goods or services using a credit card. There’s a nifty law called the Consumer Credit Act that says if you pay for something on a card that costs over £100 and less than £30,000 you can claim the money back from the card provider. You don’t even need to have spent the whole amount on the card as long as the deposit falls within the limits. This is known as making a claim under Section 75.

◆ Failing that, pay by debit card. It’s not a legal right, but the card providers run a scheme called “chargeback” which means you might be able to ask them to recall your money if there’s a problem. But act quickly. If a firm goes bust it may be too late. Using electronic money services like PayPal also gives you some rights, but read the dispute resolution rules first.

◆ Avoid paying by cash, cheque or direct transfer. You’ve got no rights to recall your money if this happens. Always question businesses that ask for payments this way and don’t pay if you can’t afford to lose it.

◆ Vouchers and gift cards. If a firm goes bust, then often vouchers you may have with them become invalid. They are generally treated as cash you are owed. Some firms that have gone into administration have honoured their vouchers. But if you hear rumours that a business is in trouble, don’t delay – use your vouchers and gift cards before it’s too late.

If you’re worried you’ve been stitched up by a dodgy retailer, speak to your local Trading Standards officer – they’re based in the council offices. They can investigate the business if they think there’s a cause for concern. The best way you can protect yourself is to keep your eye on the news in case a firm you have dealings with is in trouble.

James Walker is the founder of online complaint-resolution service Resolver.co.uk