Debt management

One of the most frustrating things that can happen to any business is that you provide a good service to a customer and then don’t get paid. Every business person has had this experience. You would have been better off not doing the work in the first place.

Cash flow is one of the keys to success in business, so it is really important to develop a strategy to ensure that you are paid cash promptly and in full. This is especially so now that we are in a double-dip recession and many people and businesses find money is tight.

We have procedures to try to ensure that we don’t get caught by that minority of people who will avoid payment if they can. When we see a new Client we set out our Terms and Conditions so that everybody is clear about when we should get paid. We also usually ask for money up front – although I realise that not all businesses can do this. One of the most important steps we take is that we try to develop a personal relationship with our client so that they are more likely to give us priority if funds are tight.

Debt Collection

If you get a new customer, do a credit check and try to get to know more about them. Don’t give them more credit than is absolutely necessary.

Sometimes, despite all your precautions, you will find that you are not paid when you should be. We have all heard the excuses “the cheque is in the post” “the Boss is away” or “we have a complaint” the list of excuses is endless, but the result is the same – your cash flow is affected.

The golden rule is “act quickly”. Phone up as soon as (or before) the debt is due. Investigate an alleged complaint even if you don’t believe it is genuine. Don’t be persuaded to accept other excuses. You will probably send a reminder but if that is ignored write to the Debtor and threaten court proceedings, or ask a Solicitor to write the letter. Remind the Debtor that your work is on stop and you will do nothing more for them until you are paid.

Often, a Debtor will pay when he receives a solicitor’s letter before action. If he doesn’t, you need to work out whether it is worth chasing the money because all the debt recovery procedures will cost time and money.

We often find that serving the Statutory Demand is effective. If someone owes more than £750 and their debt is not disputed you issue a formal demand (in a prescribed form) threatening to bankrupt the debtor if he is an individual or to wind him up if he is a Limited Company. If they don’t respond, you can issue a Bankruptcy or Winding Up Petition 21 days later. This is a serious matter, because if a Petition is issued it can have a devastating effect on the Debtor’s business and, if he is an individual his home and other assets.

If the Debtor disputes the debt, or if he owes less than £750 or if you think that insolvency is too expensive or too drastic then issue County Court proceedings – and remember to claim interest under the Late Payment of Commercial Debts Act at 8.5% if the debtor is a business (this is probably a higher rate of interest than you are having to borrow from your bank, and shows the debtor that it is not worthwhile borrowing from you by not paying the debt).

The vast majority of debt summonses are not defended and judgement can be issued without the need for a court hearing. If a defence is filed, and the claim is for less than £5,000 the case will be heard under the Small Claims Procedure, and you will probably find it more economic to represent yourself in the County Court (because legal costs cannot be recovered from the Defendant). If the debt is for more than £5,000 and a defence is issued then you should take advice because you will potentially be involved in a complicated and expensive time consuming process which will eventually result in your having to attend court and give evidence. You should take independent legal advice (if you haven’t already) when a defence is received.

If you get Judgement, you will find that there are a variety of ways of enforcing the Judgement. The more you know about your customer, the more likely you are to be able to enforce the Judgement effectively. It is only fair to warn that enforcing a Judgement can be an expensive procedure, and that you can’t get blood out of a stone. I know that it is stating the obvious, but if a debtor has no money or assets then you will not get paid.

Our experience, and the experience of our Clients is that the creditor who acts quickest and most decisively often gets paid while the creditor who waits and does not pursue the debt diligently often does not get paid.