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Keeping on top of late-paying customers or clients is crucial for business success. There have been several studies which highlight the problems caused by late payments. Research suggests that around 76% of all UK businesses are being paid late, with the average late payment burden for UK SMEs currently standing at £32,185. This can place businesses into serious financial difficulties, and perilously close to becoming insolvent. The Federation of Small Businesses has commented that "ending late payments would have saved 50,000 UK businesses from failing in 2014". Therefore, this is a very real problem impacting the majority of businesses in the UK.
Small business debt collection is an important part of our role within Forbes Collect. In this guide, we will help you to be proactive in preventing bad debts accruing and minimise the disruption (and maximise the return) when they do.
Completely avoiding late payments is not always realistic but there are ways you can minimise it.
Here is our checklist for effective credit control:
It can be tricky dealing with late payments, whilst maintaining a good relationship with your customers or client. One way to depersonalise the collection process is by instructing external professionals such as Forbes Collect.
Inform debtors that the decision to take legal action is not personal and is out of your hands. There are occasions whereby it is a requirement of insurance that legal action is taken to recover unpaid invoices after 30 days.
In most cases, this won't do any damage to your business relationship; however, if late payments persist, it might be worth thinking about whether you actually want them as a customer/client.
It is a requirement that, at the start of debt recovery action, we write a small business debt collection letter to the debtor to bring the unpaid invoices to their attention and also set out your full claim against them. This is known as a letter before action and this forms part of our pre-litigation process.
At Forbes Collect, we focus on recovering your monies at this initial pre-litigation stage and we aim to maximise your returns.
One of the ways we seek to maximise your returns is that we immediately add interest and in the case of business debts, compensation to each invoice. Therefore, even when we have been paid after our first letter, we have recovered additional sums to compensate you for the inconvenience of late payment. How much interest and compensation we can add to a late payment is set by the government, which currently stands at:
We also claim compensation on the debt. This is currently fixed at:
Recovering small business debt is a priority for us, as we understand how important prompt payments are to the success of your business, during our pre-litigation process the following will be done:
If no payment or response is received during the pre-litigation stage, then you can issue a County Court Claim. Taking your customer to Court can be a difficult decision, but to help you make up your mind here are some pros and cons:
Defended claims fall outside of our Forbes Collect service and the matter will be passed to a solicitor within the Dispute Resolution team for a fixed price review. You will be advised on the contents of the defence and the next steps in the process. If a defence to your claim is filed, you will need the best advisers on your team and our solicitors have the experience and expertise to guide you through the process.
If we are successful with your claim for unpaid invoices you will obtain a County Court Judgment, which is an enforceable Court Order. This will usually order the debtor to make payment of the debt, interest and costs immediately.
As part of our process, we will send a copy of this Judgment to the debtor giving them three further days to make payment. Unless this Judgment is paid within 30 days the Judgment will be registered against the debtor and will have a detrimental impact on their credit rating.
Unfortunately, some debtors do not make payment unless you take further action. Our usual enforcement action is to instruct the High Court Enforcement Officers to attend their premises and seize goods to the value of the debt. In most circumstances, this is enough to prompt payment.
Further enforcement options are available on request.
An alternative to issuing a County Court Claim is to commence insolvency action. This is a possibility where:
The first step in insolvency proceedings is to serve the debtor with a statutory demand for payment. This gives the debtor 21 days to make payment and also warns the debtor that failure to make payment will mean you will issue a winding-up (company) or bankruptcy (individual) petition.
The threat of Bankruptcy or Winding-Up proceedings can be a powerful incentive for a debtor to pay given the serious nature of insolvency proceedings
Using a debt recovery service, which is solicitor led, means you have expertise and experience on your side. Typically, using a solicitor means the chances of recovering the monies owed to you are greatly improved, as debtors will often take the claim much more seriously after receiving a solicitor's letter or a claim. Chasing debtors is a time consuming and potentially frustrating part of running a business. From small debt recovery services to dealing with large amounts of unpaid debt, passing your unpaid invoices over to a debt recovery solicitor will give you peace of mind that the debtor is being chased for payment, whilst you continue with the day-to-day running of your business.
To instruct our small business debt collection services:
Call our expert debt recovery team on 0800 689 4176
Enquire online by completing the required form
Email our team at firstname.lastname@example.org