Invoicing early and chasing payment should help keep cashflow healthy. But sometimes polite reminders aren’t enough and the money you’re owed isn’t forthcoming.
Deciding if and when to take more serious action can be tough. The good news is that there is a range of options available, and taking your customer to court is a last resort.
To begin with, you can start a legal proceeding yourself, engage a debt collection agency or call your solicitor.
All require you to have terms and conditions agreed upon by your customer. You will also want invoices, proof of delivery and any communication about the order or the debt with your customer. You can’t build much of a case without them.
To make a claim yourself, see the HMCS Money Claim Online service. This is a relatively inexpensive and straightforward process that you can undertake yourself, but if you are unsure then your solicitor will happily do this for you.
Engage a debt collection agency and they will handle all correspondence and legal processes on your behalf, taking the burden from your shoulders. Many work on a “no win, no fee” basis, but may also take a large commission if successful. To find a firm, check the Credit Services Association’s member database .
There are a number of legal avenues open to you, and a good solicitor will give basic advice over the phone for free. Be sure to ask for costings up front, as in some instances the fees can outweigh the money to be reclaimed, especially if you’re uncertain the customer will ever be able to pay off the debt.
Daniel Draper, commercial disputes partner at Farleys Solicitors says: “In so many cases, a single letter from a solicitor will make a business pay up. We outline that there is going to be legal action and we talk about the statutory late payment charge, which is between £70 and £100, while interest on debt, according to the Late Payment of Commercial Debts Act, is 8% above base rate. We request payment within seven days and this normally works.
“Failing that, there are two options and it depends largely on whether the customer disputes the debt. If not, and it is a straightforward situation where somebody isn’t paying because they haven’t got the money, and the debt is more than £750, you can begin insolvency proceedings,” says Draper.
If this comes to fruition, an individual can be made bankrupt or a business wound up and a third party will sell their assets to service the debt. However, other organisations may be owed money too and they will also be eligible for a share of the proceeds.
When the sale value of the assets doesn’t cover the debt, you will only get some of what you are owed. Where the company that owes you money has little or no assets, you might not get anything back, and you should take this and your legal fees into consideration when choosing if it’s worthwhile to proceed.
“Often, the threat of insolvency is enough to make a business pay up,” says Draper. “Your customer may have a genuine dispute on substantial grounds. If so, and a judge believes there is a chance you aren’t actually owed the money, you won’t be able to begin insolvency proceedings. Even if you don’t think their argument holds any water, you will have to take it to the county court where they will be given the opportunity to defend themselves.
“If they don’t defend themselves, you will be given an immediate judgement. If they do, you may have to bring documentation, witnesses and experts into play so that it can go to trial. If the judgement goes in your favour, you can either enlist a bailiff, make a claim to a third party which holds their money, usually a bank, or you can put a charge against their property which means you can enforce a sale and you will be first to be paid.”
Philip King is chief executive of the Institute of Credit Management, which has published a number of cashflow guides on its website.
He says that businesses should not feel bad about putting pressure on a customer to pay off their debts, and that a customer who has ignored your first phone calls and deadlines is likely to continue to do so unless something changes.
“If somebody isn’t going to pay you, and you’re going to spend half your working life trying to get them to pay you, whether or not you’re desperate for business, ask if theirs is the custom you want,” says King.
“Remember you can take a professional approach without being aggressive. It’s just a contractual relationship. They asked you to do, manufacture or supply a certain thing by a certain date, and the other side of that contract is that they agreed to pay you a certain amount by a certain date. If you agreed all those things in advance, you’re only following up in the exact same way your customer would if you hadn’t delivered.”
And one final piece of advice from Natalie Barron of Commercial Domestic Investigations: whatever you do, don’t be tempted to forge a legal letter.
Barron said: “We don’t make idle threats against debtors. If we are to take legal enforcement action against a debtor we will explain this clearly at the time, we won’t use it as a threat, but as a last resort when all other efforts have failed.”
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