How To Deal With Debt Recovery In Business In The UK
In turbulent economic times, more companies than ever are finding themselves in financial difficulty through no fault of their own.
A growing number of successful businesses are finding their own cash-flow is being stretched to the limit by customers who either don’t pay on time or in some cases, not at all.
Debt is an incredibly difficult subject to broach but for the sake of all concerned, it’s essential to sort the problem out sooner rather than later. However, with such a sensitive issue, there are a few things worth considering before you go rushing headlong in and deal with debt recovery.
Should I always chase unpaid debts?
Whilst you may be entitled to the money, it may be worth thinking about the likely outcome if you do decide to pursue payment.
Debt recovery can be a stressful and time-consuming experience and it is often a good idea to get a reputable solicitor to help you with the process.
However, if the individual concerned has little or no money or assets, taking them to court could be a fruitless endeavor.
Therefore, before you start the ball rolling, try to ascertain the reason the debt has not been paid.
“Is there a problem with the goods or services you supplied?“
“Are they suffering from financial hardship? Or are they simply disorganized?”
It is possible to check whether the customer has had County Court Judgements issued against them; this is a good indication they may be struggling financially. Likewise, if they have a Debt Relief Order, you can more or less kiss goodbye to what you are owed. This means they have £50 or less disposable income per month and £300 or lower in assets held.
In some cases, therefore, particularly if the amount involved is fairly trivial, it may be more cost-effective for you to write off the debt and focus on using the time you save to get more business or fulfill another order. In some circumstances, you may want to continue to pursue payment of the debt to make a stand, or to set an example to other late payers.
If you have provided goods you may be able to reclaim them if they have not been paid for. You will need to hold a valid retention of title clause; a solicitor will be able to advise you whether you have a case.
Keeping the customer
You may not want to lose your customer even if they are having financial hardship, particularly if you have previously enjoyed a good business relationship.
You may be worried about taking too tough a line regarding debts because it could jeopardize future profits. However, a customer who isn’t paying is not worth keeping regardless, even if they have previously been no trouble!
The only way to approach the situation is to remain diplomatic and tactful and keep them informed of any action you intend on taking. Make sure you provide them with every chance to make payment and be open to the possibility of compromising or agreeing on a repayment schedule if they are having cash-flow problems. By showing that you are willing to help them you stand a much better chance of keeping them as a customer, which if their problems are only temporary, you may well want to do.
Can I charge interest on overdue debts?
If you have to juggle your own finances because you haven’t received payment, you may be thinking about charging interest on the overdue balance.
If you have a written contract, including a clause that specifies how much interest can be charged and when it becomes active is a good idea, as well as making it clear that any debt collection costs will also be passed on.
However, even if you don’t have the credit terms set out in writing, commercial debts are covered by a piece of legislation known as the Late Payment of Commercial Debts (Interest) Act 1988. This statute allows interest to be charged at a specified rate (which is updated every six months) once a 30 day period has elapsed.
In practice, most firms opt to waive their right to charge their debtors interest unless the case reaches court. If you do intend to add these costs to the bill, it is imperative to provide a breakdown of the charges in writing at the earliest opportunity.
When should I instruct a solicitor?
Many firms think they should only get a solicitor involved once the debt looks as if it will have to be resolved in court.
But in practice, bypassing the case to a solicitor earlier, you find that the customer pays up, either in full or agrees on a repayment schedule. A letter from your legal representative sends out a sign that you are serious about chasing what you are owed, and it also removes you from having to hammer out the negotiations, moves which may help rescue the business relationship for the future and it’s an easier way to deal with debt recovery after all.
Dealing with debt recovery is an unpleasant but integral part of business and knowing how to handle it in the right way can have a very significant impact on not just the chances of getting the bill paid, but also retaining a good relationship with the customer.
In some cases, it is better to simply cut your losses whilst in others, a robust debt recovery approach is essential. Hiring a debt recovery agency or instructing a solicitor who has experience in the industry can be a valuable tool and help the whole matter to be resolved much more quickly and amicably than if you struggle to go it alone.