Setting up in business can be a very liberating step to make but unfortunately a large number fail or experience serious debt problems.
And if you run a company which has offered credit or provided services which have not yet been paid for, trying to get the money you are owed can take a lot of time and effort, sometimes to no avail.
If non-paying customers are eating into your business time it might be worth starting a formal debt recovery process, as sometimes the mere threat of legal action is enough to prompt payment. Here’s a guide about the process you can follow with the help of a solicitor to try and ensure your customers pay up.
Information and research
Although you might be keen to start pressing your customers for the cash, the first step that any legal process of chasing debts should always be a robust investigation into the debtor’s financial circumstances.
Simply following a pre-determined set of steps as part of a debt recovery mechanism won’t yield the best results and could mean a lot of unnecessary effort.
For example, carrying out a credit search will help to provide an insight into your customer’s affairs. Are they defaulting on loan agreements and credit cards? This could point to a far more serious financial issue than just poor organisation and accounting procedures. A solicitor experienced in dealing with debt recovery will have the facility to be able to run a check with one of the major credit reference agencies such as Experian or Equifax.
And of course, the situation could be even more severe. If the company which owed you money is in the process of being wound up or entering into liquidation there is little point vigorously pursuing the debt as your chances of repayment are slim. By all means register as a creditor but don’t waste money trying to sue the company as your efforts will be in vain and you will end up even more out of pocket.
Checks can also be carried out with the Land Registry records to ascertain whether the company owns property or land. Statistics suggest that those who own property or land are more likely to pay up than those who are simply tenants.
A warning letter
Once you have established that the company can viably pay the debt, getting a letter from your solicitor warning of legal action is the first step to take.
This should set out the sum which is being reclaimed, and also warn of additional interest and charges being accrued where applicable. The debtor should be clearly informed that proceedings will be issued unless payment is received.
The realisation that non-payment could land them in serious trouble is sometimes enough to jolt a company into sorting out their finances to free up the cash to pay you. If this is the case and you want to continue to do business with them, it’s worth considering whether you should insist they pay for all goods and services up-front rather than offering credit again.
It’s also worth knowing that if the debt isn’t being disputed, the customer is a limited company and the amount involved is lower than £750, you can sidestep High Court action and simply threaten to issue winding up proceedings!
It’s good to talk
Before you pursue court action, it’s a good idea for your solicitor to call the customer; this is helpful for several reasons.
Firstly, getting a telephone call can make the debt real and dealing with seasoned debt negotiators means there is no chance of blasé excuses from the customer. Often this can be the best way to agree on a repayment schedule.
Secondly, it also establishes certain key facts which are vital if you are going to proceed to court, such as whether the customer is still trading and the correct address as these details will all be needed in due course.
If the debt remains outstanding, the matter will proceed to a court judgement, the process of which is started by the issuing of a claim form.
Interest can now be claimed at the rate of 8% although a different rate can be applied if specified in your contract terms. You will also have to pay a fee for issuing the form but if the debt is settled immediately, they will also be responsible for reimbursing the cost.
Once a Defence is filed with the court, you will be liable for payment of a further fee; these costs are a very good reason why it is important to check the likelihood of getting your money back before taking action.
If you believe there will be no viable Defence, you can ask for a Summary judgement. This means that you will not have to attend and a decision will be reached based on documentary evidence alone.
If the judgement is passed in your favour but the debt is still not paid, you then will have to proceed to Enforcement.
There are three main options open to you:
- Getting a Warrant of Execution for a bailiff to remove goods belonging to the debtor
- Becoming a secured creditor by obtaining a Charging Order on their property or land.
- Getting funds from a third party who owes money to the debtor by means of a Third Party Debt Order
In many case the debtor may be willing to pay once a Judgement is passed against them but unable to raise enough money at once. In these cases the simplest solution is to negotiate a repayment schedule via your solicitor which is acceptable to both parties. This avoids the need for any prolonged Enforcement action.
No-one likes have to take legal action to get debts paid but failing to get your money could ultimately put pressure on your own business. It’s therefore essential that you find a solicitor you can trust to give you the best professional advice possible so you not only get your debts paid, but also don’t waste valuable resources chasing a lost cause.
By Samantha and debt recovery specialists, SA Law, Hertfordshire, England.