All four of our offices in York, Malton, Pickering and Selby have now reopened their doors to the public following the easing of COVID-19 lockdown restrictions. Although we have continued to be able to offer a full service to our clients over recent weeks,...
In the current economic climate maximising your turnover alone isn’t enough. All businesses need to have efficient and effective procedures in relation to the collection of money owed by customers.
The late payment or non-payment of debts can cause huge damage to any business, large or small. In some circumstances the failure to collect a number of small but significant debts in itself, may cause a business to fail. Furthermore a failure to collect in debts quickly can lead to unnecessary cash flow difficulties. An effective method of debt collection is therefore a fundamental cornerstone of any commercial enterprise.
If a customer has failed to make payment of an invoice, there are several ways to try and recover the debt. The appropriate action to take will depend on the size of the debt and your ability to prove that you are owed the money.
The need for debt collection in the first place can be reduced by invoicing effectively. Businesses should make sure invoices are accurate and ensure the payment terms are clearly set out, showing the date by which payment is due.
If an invoice has not been paid, the first and most basic step is to contact the debtor by telephone or by writing to remind them that payment is overdue. Do not delay making this contact!
In any letter it’s important to include the following information:
- Provide the date by which you expect to receive payment (e.g. give the debtor seven days only to pay)
- Advise the debtor that interest will become payable on the outstanding debt
- Request the debtor to state what issues, if any, the debtor has with the invoice/goods or services provided that might explain their non-payment
- Provide details of what action you will take next if payment isn’t received by the specified date.
If the debtor ignores your correspondence you may wish to consider obtaining professional help. A basic letter from a solicitor can be a very cost effective and quick way of recovering outstanding debts. It is reported that as many as 71% of debtors make payment upon receipt of a solicitor’s letter. Usually for a fixed fee, a solicitor will write to the debtor on your behalf.
If the debtor fails to settle the debt after you have written to them and/or they have received a solicitor’s letter; or if they dispute the debt, there are still options available to you before considering taking action through the Courts. Court proceedings to recover debts can be time consuming and expensive, especially when compared to the value of the debt you are trying to recover. Other alternatives to court action include independent arbitration, mediation and ombudsman schemes - known collectively as ‘alternative dispute resolution’ (ADR).
If despite all your efforts, the debtor still refuses to make payment or seeks to avoid payment on spurious grounds, consideration should be given to taking action through the Courts. You can claim interest at 8% per annum on the debt amount from the date payment became due.
Ensuring debts are quickly and effectively followed up as soon as they become overdue can avoid the need for more time consuming and costly action for you and your business further down the line. There is overwhelming evidence that the longer the invoice remains unpaid the less likelihood there is of recovery!
If you would like to know more about what you can do to recover outstanding debts, please do not hesitate to contact Neil Largan, Head of Dispute Resolution at Crombie Wilkinson Solicitors.