Whether an individual or another company owes your business money, it is a stressful time, and you can be faced with many challenges. We understand that the question going through your mind is can I get my money back and if so, how?
What is the impact of late payments?
- Financial Strain – there is £2 billion owed to UK SME’s, the majority of which is due to late payment.
- Business Failure – non-payment of debts can have a negative impact on many businesses. Approximately 50,000 businesses fail each year as a result of non-payment.
- Business Growth – many businesses are restricted on how they can expand due to them having cash flow issues as a result of non-payment of debt.
What are the initial steps in recovering payment?
- Reminders – It is important to remember that people are only human and sometimes forget things! In the first instance, it is worth giving people the benefit of the doubt and sending a friendly reminder that payment is due, especially if you are looking to protect business relationships.
- Communication – When communicating with someone about non-payment it is worth thinking about the way that you are communicating and keeping a record of the same. If possible, it is better to send and receive communications in writing so that you have a clear record of what has been discussed.
- Payment Plans – Unfortunately, peoples circumstances change which means they may no longer be able to meet their obligations under a contract. It is worth considering the acceptance of a payment plan from a debtor. It can be more beneficial to receive monthly instalments over a period of time which results in the debt being paid off rather than going to Court and incurring costs on legal fees.
- Instruct a Solicitor – if you are unsure what steps to take or have tried negotiating with the debtor but no progress has been made, seek advice from a solicitor. A solicitor can issue a formal letter before action making a demand for payment to be made.
What can I do if a debtor ignores correspondence?
- Issue Court Proceedings – If no positive response has been received from the debtor, a claim can be issued against the debtor to recover the outstanding monies and to obtain a County Court Judgment. If a judgment is obtained and the debtor fails to make payment, the creditor can amongst other things, instruct a bailiff to collect the debt owed.
- Issue a Statutory Demand - If you are owed money, a solicitor can issue a Statutory Demand on your behalf which is an official written request for payment within 21 days. In business to business transactions, if the debtor fails to make payment, this can lead to the creditor issuing a Winding up Petition against the debtor company.
What is Small Claims Court?
Small Claims Court is for debts that are £10,000 and under. Unlike claims over £10,000, legal costs are not recoverable in the Small Claims Court from the losing party, even if you are successful in your case. This is why it is important for businesses to have clear and concise terms in their contracts and terms and conditions. A provision for payment of legal fees upon breach of contract could assist in the Small Claims Court.
Can I claim interest on the monies I’m owed?
- Late Payment of Commercial Debts Act 1998 – This legislation only applies in business-to-business transactions. The Act provides that the creditor is entitled to statutory interest at a rate of 8% from the date that the debt becomes due.
- Contract – Depending on the terms of your contract, you may be entitled to claim interest on the outstanding sums.
How can I prevent non-payment?
- Terms and Conditions - a crucial factor in trying to limit future losses is a good set of T&C’s. Within this document you want to have clear and concise terms for payment including provisions for non-payment. This will reduce the risk of unpaid invoices as both parties will be clear from the outset what their obligations are. These should also be tailored to your business, this is crucial because no two businesses are the same, it is important they suit your requirements.
- Contract – a legally binding business contract provides protection for parties and prevents your business from exposure to risk e.g. non-payment. A good contract should clearly set out the offer and acceptance between the parties. Depending on the nature of the agreement between the parties, the contract should include deadlines and payment terms, so it is clear to both parties what has been agreed. A crucial part of any contract is good termination and exit clauses. If you have a contract with a bad debtor, you want to ensure that you have the right to terminate it to prevent a further loss.
If you need advice on recovering a debt or want to tighten your terms and conditions or contracts then please get in touch with Isabella Green or Hamzah Ajaib, who would be happy to assist you.
