One of the most frustrating aspects of running a business is having to laboriously chase your debtors list and late payers after the sale of a product or delivery of a service.
There are a number of frequently asked questions that we get as legal professionals about reducing your debtor collection period and there are a number of key points which we have raised below.
- What is the best way to chase for debts?
From a practical point of view having a clear internal process for chasing debts that encourages discussion with your debtors at each stage of that process is essential to reduce the time spent chasing debtors and the time your debtors spend outstanding.
- How do I chase debts without angering our clients or customers?
As above, the process, especially in the early stages, should encourage discussion, being tactful, but it should still remain strong. The longer the period of time where no resolution has been reached should come alongside an escalation and strength of chasing. As part of this transparency as to the escalating stages should be provided. Ultimately the final stage of your process should be the consideration of issuing legal proceedings.
- What methods yield the best results?
When chasing for debts and enforcing your credit control procedure it may be best to have different methods of contact, as well as contacting different people at the debtor at different stages. At the outset an email or letter reminding of the debt can be the most appropriate, with escalation through via a phone call or contacting a more senior member of that business, potentially a director. A useful tool is to work with a solicitor who, after unsuccessful initial chases, could send a formal letter showing that you are serious about the debt.
- What steps do I have to take prior to bringing legal proceedings?
There are a number of specific rules which apply prior to taking legal action called the “pre-action protocols”. These protocols set out the conduct which the court expects a party to carry out prior to initiating legal action. The protocol which applies will depend upon the type of claim which is being made but also, as of 2017, who the prospective defendant or defendants are.
Where the debtor is a business the first stage in respect of proceedings will be to send a Letter Before Claim which sets out how the debt arose, the evidence which is being relied upon, how you will proceed and alternatives to court which you would be willing to consider (such as negotiation or mediation). Where no response is forthcoming after a reasonable period of time, such as 21 days, then issuing proceedings would be an allowable next step.
Where the debtor is an individual the rules are slightly different and more balanced in favour of the individual. Where this is the case the time limits are increased and any response from the debtor will have the effect of extending the period where issuing would be acceptable; in addition, any proposal made by an individual should be given serious consideration.
- How do I begin legal proceedings?
When you reach the stage of your process where legal proceedings are necessary, assuming the protocols have been complied with, a claim will need to be made. This can be done online, However, whenever legal proceedings are being contemplated it is advisable to seek legal advice and expertise in setting out a claim to ensure a seamless and well argued claim.
- What is a claim form and particulars of claim?
A claim form is a standardised form, Form N1, which sets out the vital information of a claim such as whom the parties are, the amount claimed and brief details of the claim. The particulars of claim are a more detailed breakdown of the claim which sets out what you are relying upon, which could include a contract, invoices and correspondence.
- What are the benefits of instructing a solicitor to chase our debtors?
Perhaps the largest benefit of instructing a solicitor is that it allows you to focus upon generating income for the business and creating sales rather than spending time chasing the debtors. As well as this the impact which comes from a well argued legal case, carried out by us, leads to a faster and quicker resolution to debt matters alleviating the strain on cash flow and reducing bad debt.
As stated above it also can be a useful tactic to show how serious you are about the debt. As well as this a solicitor would be mindful of the procedures and protocols which are in place and will be mindful to comply with all of these.
- What other options do I have to chase my debtors?
Instead of pursuing a debt through the courts and by issuing proceedings it may be that a more appropriate procedure to follow would be to issue a statutory demand. This is a formal demand for payment that can be used as evidence to initiate winding-up of a company.
For a statutory demand to be appropriate the debt must be above a set amount (£750 for companies) and undisputed. There is a set format which a statutory demand must take and the issuing of a statutory demand may be more effective than issuing proceedings due to the imminent threat of being wound up.
- Can I charge interest on debts which are outstanding?
It may be that your terms and conditions, should you have these in place, have provisions for claiming interest beyond a set credit period however where they do not you may be able to rely upon statute (Late Payment of Commercial Debts (Interest) Act 1998). Under statute you would be able to claim interest at 8% above the Bank of England’s base rate.
This entitles you to claim interest on any outstanding debts beyond a period of 30 days however it is usual, in ensuring a continuing business relationship, that this is only claimed once that relationship has deteriorated or proceedings have been issued.
- How can Acumen help me with my debt chasing?
At Acumen we have extensive experience of helping our clients when it comes to getting paid for the work which they have carried out in good faith. We offer fixed fees for the initial stages of taking action, such as drafting a letter before claim or a statutory demand. We’re actually very good at it: in 2018 we recovered 100% of undisputed debts for our clients. We also have a wealth of experience dealing with situations where a debt is disputed, where we have a record of achieving a favourable outcome in 96% of our clients disputes.
- What should I have in place to best protect our interests going forward?
One of the most important documents to have in place for any business is standard terms and conditions which form the contract with the customer. This should not only cover vital elements such as payment terms, deposits and interest, but other important commercial terms as well. These terms can address issues such as intellectual property rights, the parties’ obligations and limitations on liability.
To have your terms and conditions reviewed or to have them put in place contact our commercial department here.