Managing cash flow is the secret to a successful business. Poor cash flow, even when trade is buoyant can cause significant difficulties to a small business and in extreme cases, force a closure. A carefully planned and enforced credit control process is a necessity for any business and steps to be considered might include:-
- vetting a potential customer’s credit worthiness before opening an account with them;
- drawing up written contracts and/or terms and conditions of trading, emphasising when payment is due and providing a penalty for late payment. The Late Payment of Commercial Debts (Interest) Act 1998 allows small business to claim late payment interest at 8% above Bank of England Base rate;
- operating a black list of customers with an unacceptable payment record unless payment is made in advance;
- getting to know and complying with the procedures of your customer’s invoicing and accounts departments;
- maintaining regular credit checks on existing customers;
- ensuring all dispatch notes and invoices are accurate, are delivered to the right customer and sent to the correct address;
- introducing a “stop” procedure for supplying customers who are late in payment;
- sending reminders at appropriate stages and following up by phone/fax/email/ contact by sales force as necessary.
If, in spite of such a procedure, payment of invoices submitted is not forthcoming, we can assist with pursuing outstanding debts against individuals, businesses and companies.
What the process involves
Our objective is to recover your debt as quickly as possible whilst not losing sight of the cost effectiveness of the process for you.
Spending further money pursuing a debtor who is already insolvent is pointless.
We will discuss with you at the outset what is known about the financial position of your debtor in an effort to maximise recovery. We will endeavour to tailor the debt recovery process to your particular circumstances, but it is likely to involve:-
- pre-action letter – we will submit a letter to your debtor demanding payment within a short period and threatening proceedings if payment is not discharged. We will require from you a copy of your outstanding invoices to attach to the pre-action letter;
- telephone demand - we may telephone the debtor seeking payment on your behalf and in an effort to find out whether there is a genuine reason for non-payment, whether financial or otherwise, and which we can then report back to you.
- statutory demand – if your debt exceeds £750 and is indisputable, it may be possible to prepare and serve a statutory demand either upon an individual or a company threatening bankruptcy or winding up proceedings. This can be a very effective and cheaper method of recovery than issuing Court proceedings although it can only be utilised where the debt is not in dispute.
- Court proceedings – we can issue a claim form on your behalf at which time interest can be claimed at the Court rate of 8% (or any higher rate if you have contract conditions allowing for recovery under the Late Payment of Commercial Debts (Interest) Act. A Court fee is payable when the claim form is issued dependent upon the amount of the debt. An amount of fixed costs can also be added to the debt at this stage. If no Defence is filed to the claim, Judgment will be entered on your behalf at the first possible opportunity. If a Defence is filed, we will discuss the content with you and if it is considered to be unlikely to succeed we may make application for early Judgment. If that is not possible, payment of another Court fee is required after which time the Court will set a timetable to be followed before the matter reaches a hearing. We will keep you informed throughout the process and attend any hearing with you when the matter is to be determined by the Court if a negotiated settlement cannot be achieved beforehand.
Small Claims Court
If the amount of your debt is for less than £10,000 and a Defence is filed to any claim we issue on your behalf, the case will be automatically referred to the “Small Claims Court”. Only limited costs are recoverable from the debtor in the Small Claims Court, even when your claim is successful and the strict rules of evidence do not apply. The system is designed for you to “do it yourself” although we will assist you with any part of the process as you require.
How do I enforce a Judgment?
If you have issued Court proceedings and been successful you will have a Judgment against your debtor which can be enforced in a number of ways. We will discuss the methods of enforcement available and advise you as to what may be appropriate in your particular circumstances.
Methods of enforcement can include:-
- issuing a Warrant or Writ of Execution for which a fee is payable to the Court and following which the bailiff or sheriff is instructed to move and sell goods belonging to the debtor in settlement of the Judgment;
- obtaining a third party debt order by which the Court gives authority for a third party who owes money to the debtor to pay you directly. This can be effective if the debtor has a bank account of which you are aware and which is in credit;
- obtaining a charging order on any land or property belonging to the debtor and which can be registered against that land preventing a sale without payment being made to you. This method of enforcement is effective only if there is sufficient equity in the property to clear any previous charges registered against it and your own indebtedness when the property is sold;
- issuing bankruptcy or winding up proceedings if the debt is of sufficient value and provided the debtor is considered to have assets available to pay the debt. This can be an effective but expensive process and is only worth considering where that expense can be recovered together with your original Judgment debt.
For more information please request a call back and talk to one of our dedicated solicitors.
Useful Guides and Related Articles