Cash flow is King- Long live the King!
Cash flow is fundamental to the life of a successful business. Businesses can very quickly get into financial trouble if their customers or clients fail to settle their accounts on time. Most businesses tend to collect debts irregularly, frequently only acting when the situation gets out of hand. Debts are best collected as an extension of an organised credit control system.
There are many reasons why people won’t pay you. Frequently they do not think you are serious or, alternatively, they think they can bully you. On many occasions they think if they ignore you, you will not persist. If someone is putting them under more pressure they will pay them before they pay you. Many firms will simply write off unpaid invoices costing companies thousands each year.
An effective credit control system is vital to your business in today’s economic climate more than ever before so now is the best time to review your credit control procedures. The key here is to ensure that you have a set procedure in place which is followed in each and every case.
Firstly, get your house in order and limit risk! When you take on a client – know who you are dealing with and if necessary carry out credit checks by using a credit reference agency. This may also determine what credit limit you may wish to impose.
Set out your terms and conditions clearly so everyone knows where they stand. This will assist in the long run if any dispute is raised by the paying party. If any objections to your terms are raised at the outset you can either renegotiate them or consider whether it is worth having that customer as a client. The key is to ensure that all terms are agreed and incorporated prior to carrying out any work.
You may also want to look into whether it is appropriate for your business to use factoring companies or have in place credit insurance.
Once an invoice is overdue, ensure that your set credit control procedure is followed. This could involve a polite chase up letter and informal call after a set time. If payment is still overdue then send a stronger worded letter along the lines of ‘I am disappointed to note payment has not been received. I am sure that this is an oversight. I would be grateful to receive payment by return.’ If payment is still not received a final warning letter should be sent threatening to take matters to the next stage. Always ensure that you carry out any threat you have made.
You now have several options available to you.
Use a debt collection agency to recover the debt for you. The method of recovery can vary dependant on the company used as can the charging methods. Ensure that you use a reputable agency. A good debt collection agency will not expect you to make a payment upfront. Debt collection agencies often operate on a ‘No win, No Fee’ basis. However, their method of recovery can be limited and this may prolong recovery of the debt.
Use a Solicitor. Many firms of solicitors are able to offer a cost effective letter before action service for a fixed nominal fee. This means that a Solicitors letter can be sent on your behalf to the debtor giving them a set time in which to discharge the debt, which is recommended as 14 days in accordance with court guidelines. They will also advise and, if appropriate, calculate your entitlement to late payment interest and compensation that can then be included in the letter. This is an effective tool as debtors will often pay quicker once they have been threatened with legal action and a solicitor’s letter speaks volumes! Also if the debtor does come back with a dispute to the debt, a solicitor is best placed to advise you. Many firms will include any incidental advice pre and post letter before action within the set charge for the service so you are aware of what the charges are from the start and there is no obligation to proceed beyond that stage. Many firms will also offer free telephone advice.
If the letter before action does not have the desired effect, court proceedings can than be issued. Many specialist debt recovery solicitors will offer a fixed fee structure for the issue of proceedings and request for judgment with the majority of these fees being recoverable from the debtor in successful cases. Some will have a direct link with the court which can also save on the court fees, which are usually required to be paid by you upon issue. Once judgment is obtained a solicitor will also be able to advise and deal with the best method of enforcement.
A firm of solicitors can also send a Statutory Demand to the debtor if the debt is over £750.00. Once a Statutory Demand has been served the debtor has 21 days to discharge the debt otherwise the creditor has the option to commence bankruptcy/winding up proceedings. This can be an effective shot across the debtor’s bow.
Alternatively, use the small claims court to take proceedings yourself. This is an option to you if you have the time and capacity to do so. Although, you may need to instruct solicitors at a later stage of the proceedings if the claim is disputed. Litigants in person often run into trouble when this happens as they are unaware of the procedures imposed by the courts.
Doing nothing, is not an option. Once an invoice is overdue – act!
Written by
Jemma Holliday F.A.L.C.D Costs Lawyer
Jennings Law LLP Debt Recovery Solicitors
Email : jemma.holliday@jenningslawllp.com
Website : www.jenningslawllp.com
