Recovering money from an individual or company debtor  

It is an unfortunate part of business life that at some point you are likely to experience problems with an individual or company that does not pay.

You have carried out your work efficiently and with no problems or complaints but when you send out the invoice the customer makes excuses and promises that payment is on its way but then they start to avoid your calls and you suspect that they are experiencing cash flow issues.

In that, hopefully unusual, situation it is important that you know what to do so that you can maximise your prospects of recovering the debt.

One option is to issue court proceedings. However, the court process can be slow and so before embarking on court proceedings it is worth considering whether serving a statutory demand is a faster and more effective route to recovering your debt.

A statutory demand is formal demand for payment of a debt which can be used to establish if the debtor is unable to pay its debts and is therefore insolvent. The advantage of using such a demand is that the threat of insolvency proceeding is likely to put the debtor under pressure to pay. If there is no dispute, the demand is likely to persuade the debtor to settle the debt quickly if he has funds to do so to avoid having a winding up petition (for a company) or a bankruptcy petition (for an individual) issued against it. The financial consequences of a petition can be very serious for a business which may find its bank accounts frozen and unable to trade.

The costs of serving a demand are relatively modest and if the debtor does not pay by the deadline given, you can still go down the route of issuing proceedings for recovery,

Statutory demands can only be used where the debtor is an individual if over £5,000 is owed or, in the case of sums owed by a company, over £750 is due.

It is important to obtain legal advice on where a statutory demand is suitable for your business as they cannot be used in circumstances where there is a genuine dispute over the debt or genuine cross claim.

For further information please contact Akeel Hussain, Litigation Solicitor specialising in commercial and company disputes at Ware & Kay incorporating Pearsons & Ward Solicitors on York 01904 716000, Wetherby 01937 583210 or Malton 01653 692247 or email akeel.hussain@warekay.co.uk.