Buying debt at a discount can be a highly profitable investment — but only if you buy the right debt. The difference between a winning deal and a dead loss is almost always the quality of the due diligence done before signing. Here is the checklist experienced buyers work through before making an offer.
1. Verify the debt actually exists
Ask to see the underlying paperwork: invoices, contracts, delivery notes, statements or, best of all, a County Court Judgment. A debt you cannot evidence is a debt you cannot enforce. Never rely on the seller's word alone.
2. Investigate the debtor's solvency
This is the single most important step. A large debt against an insolvent debtor is worth less than a small one against a solvent business. Check:
- Companies House for trading status, accounts, charges and directors.
- Whether the debtor owns property or assets that could satisfy a charging order.
- Any existing CCJs, insolvency notices or winding-up petitions against them.
3. Check the limitation position
Confirm the debt is not statute-barred and work out how long is left before it is. Look for any part payment or written acknowledgement that resets the six-year clock under the Limitation Act 1980.
A debt three months from being time-barred is a very different proposition from one with five years left to run — price accordingly, or walk away.
4. Understand the enforcement route
Ask yourself how you would actually recover the money. Is there a judgment to enforce, or would you have to litigate from scratch? Are there assets or income to target? What will enforcement cost and how long will it take? Model a realistic recovery, not a best case.
5. Look for disputes and defences
Has the debtor ever disputed the debt, alleged faulty goods, or claimed a set-off? A debt that looks clean but hides a genuine dispute can collapse in court. Read the correspondence.
6. Confirm the seller's title
Make sure the seller genuinely owns the debt and has the right to assign it. Check the underlying contract does not prohibit assignment, and that the debt has not already been sold or pledged elsewhere.
7. Price in the risk and costs
Only now set your offer. Factor in enforcement costs, the probability of recovery, the time value of money and a margin for the unexpected. The discount you demand is your reward for taking on all of the above.
The paperwork at completion
When you buy, insist on a proper deed of assignment with the debt documentation annexed, and ensure notice of assignment is given to the debtor so payments come to you. Skipping these steps can leave you unable to enforce.
Conclusion
Due diligence is not a formality — it is where the profit is made or lost. Verify the debt, investigate the debtor, check the clock and model the recovery before you commit a penny. Buy well, and the discount does the rest.
