Does your business have a debt recovery process in place? Debt Recovery expert, this seven point plan guides you through the steps to effective debt recovery.
Step 1
Once the debt is overdue, send a gentle reminder; whether by statement, letter or email. If you have a named contact it is always better to send it to them and keep communication open. They will be familiar with why the debt has arisen and hopefully be able to arrange payment or pass to the relevant department/person for payment swiftly. The other benefit of this is that if there is a genuine reason for non-payment you should find out as quickly as possible to address the reason and minimise any further delay in payment.
Step 2
A further 7 days later send another, more serious reminder. If your terms refer to interest on late payments, remind your customer.
Step 3
If this is a business to business debt, advise your customer that the Late Payment of Commercial Debts (Interest) Act 1998 applies which renders them liable to pay enhanced interest (8% over the Bank of England base rate); late payment compensation (ranging from £40, £70 or £100 depending upon the amount owed) and reasonable legal charges.
Step 4
Send a formal letter before action/letter of claim. If your customer is a sole trader or individual, the Pre Action Protocol needs to be followed allowing them 30 days to pay/respond. If your customer is a business, 14 days should be allowed.
£20 + VAT for a letter before action
Step 5
Consider offering a payment plan. Non-payment could be due to cash flow and a repayment plan could offer a lifeline, especially in difficult economic times. Negotiate a plan that suits you and your customer then confirm it in writing, keeping an eye on the terms agreed and ensuring the customer adheres to the agreed plan.
Step 6
If all else has failed, don’t be afraid to go to court. The court fees and some legal costs will be added to the debt. It generally takes 4-8 weeks to get claims issued and the debtor then has 14 days to respond. Provided the claim is not defended a County Court Judgment will then be obtained.
Step 7
Consider what enforcement steps are most suitable. The High Court Sheriffs have wider powers than County Court Bailiffs. There are also charging orders and attachment of earnings to consider.
A word of warning: if a debtor is genuinely unable to pay, you could be throwing good money after bad. Try to ascertain their true financial position before embarking on recovery proceedings. And if there is a dispute, deal with it quickly – the longer matters drag on the harder it is to make a recovery.
If you are concerned about your cash flow or debts and would like an informal discussion about your options or advice on how to set up a payment plan or negotiate payment terms, or would like Girlings to send a Letter Before Action/Letter of Claim please contact our Debt Recovery team and arrange a call back. Girlings has office in Ashford, Canterbury and Herne Bay.
