If your business is owed money, you want a solution that will handle the situation quickly and effectively. Late payments can be a detriment to your company’s cash flow, so this article exists to help your business to recover money you’re owed. We’ll cover some common scenarios and ways to navigate them.
What if a client doesn’t pay?
The steps to follow are:
- Invoice as normal
- Chase after terms are up with polite emails and reminders
- Credit hold to stop any works proceeding until the invoice is paid
- Final notice is the last piece of correspondence you’re likely to send a client before legal proceedings and includes a payment deadline
- Legal action through small claims court or debt collection services
What is a Letter Before Action?
An LBA is often sent out as a reminder of a payment exceeding the agreed business terms. They can be used as a way to gauge how serious of an issue the debt has become before they decide if legal action needs to be taken.
The LBA should include:
- the date
- the name, title and position
- confirmation of the amount of money owing
- the method of preferred payment
- the debtor’s contact information, including email address
Legal Action
If you need to take a debtor to court, a County Court Judgement is often the fastest route to recovering money, although it should be noted that obtaining a CCJ can be costly for yourself.
Once granted, your options for enforcement include:
- Charging order – the order is made against the company’s property, including shares or assets and can be enforced by law if necessary
- Controlled goods agreement – the debtor agrees to grant legal control of certain goods (called “controlled goods”) for an agreed time period. If during this agreed time period the debtor defaults on their repayments, they will then lose ownership rights of these controlled goods. The proceeds will then be paid out towards reducing what is owed by the debtor
- Winding up order – a Liquidator starts recovering any assets that are still owned by the company and use them for as much money as possible in order to pay back what has been owed
Laws governing commercial debt recovery
The law in England and Wales on commercial debt recovery is based around the Limitation Act of 1980. This Act sets out a number of rules that creditors must follow to start legal proceedings against their debtor, including:
- Giving notice in writing
- Doing this within six years from when they are owed money by the debtor
- Not using violence or threatening behaviour
- Not trespassing on any property belonging to the debtor and not taking away controlled goods without permission from a court order
How to avoid business debtors
Agree on fixed terms before negotiating a new client contract. Outlining a business agreement is a sincere way of building trust with the customer so that they understand the process of the payments. A late payer fee can work as a good deterrent to ward off late payers.
The most important factor is to follow the correct procedures to ensure the best chance of receiving the money your business is owed. If you do not adhere to debt recovery regulations, it could affect your claim later down the line.
For advice on all matters regarding business debt, please get in touch as I can help with years of experience handling debt recovery claims.