Effective Debt Recovery – What you need to know

It is tempting for businesses to be reticent about taking action to recover a debt from a ‘longstanding customer’ particularly one that places a lot of orders with you. But these customers may be affecting your cash flow and putting your business at financial risk. Taking action sooner rather than later is important to the operation of your business and it can also stop your customers seeing you as a ‘soft touch’, paying other creditors before you because they are shouting louder.

Effective Credit Control

To help ensure your company runs smoothly and cost-effectively. The following steps will help you implement effective credit control:

• Issuing regular statements to your customers and chasing for payments by email, letter and in person.

• Making sure that you put procedures in place to avoid the risks of dealing with new customers such as advance payments, credit checks on companies and strict credit terms.

• Ensuring that your payment terms are incorporated into your contracts with customers and that they are aware of your terms of trading before they engage with you. Your terms and conditions should also allow you to charge interest on late payment.

• Taking prompt action to recover the debt.

Interest on late commercial payments

You are able to charge interest on late commercial payments if it is a business to business transaction. The amount of interest you can charge is 8% plus the Bank of England base rate. You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it.

The Debt Recovery Process

• Letter of Claim

In many cases, a letter of claim from a solicitor will be sufficient to lead to payment in full or open negotiations if the debt is disputed. If a debt is owed to you by a business, you need to give them 14 days before you start any court proceedings. However, if the debt is owed to you by an individual or a sole trader, the ‘Pre-Action Protocol for Debt Claims’ will apply, which means that you should allow the debtor at least 30 days before you instigate any court claim.

• Court Proceedings

If the letter of claim does not result in full payment of the debt, the next step would be to issue proceedings and, if the debtor does not respond or dispute the claim, obtain a judgment.

• Enforcing a Judgment

Sometimes, debtors may not pay even when a judgment is obtained against them. In this scenario, there are several options which can be pursued to enforce the judgment and get paid.

Winding Up Proceedings

If you are owed money by a limited company and provided that the debt is over £750, is undisputed and it is reasonably believed that the company is unable to pay its debts, you may wish to consider issuing a winding up petition. A formal demand by solicitor’s letter giving the company a deadline to pay the debt may be sufficient and will certainly gain the company’s attention.

Contact our Debt Recovery Solicitors in York, Malton and Wetherby

The debt recovery process can be time-consuming and so obtaining external help with the process will ensure that you can concentrate on running your business.

In addition to providing your business with help recovering any outstanding debts that are owed, we can help you to review your current credit control procedures and offer internal training to aid you with this.

For further information please contact us today by filling out our online contact form.