Business Debt Recovery
Sometimes businesses will have to deal with companies that fail to pay their invoices. These companies may ignore all attempts at debt recovery. Unpaid invoices can have a serious impact on your cash flow. Sometimes, requests for payment fail to produce results. In those scenarios, legal action becomes necessary. This is where experienced debt collection solicitors can help. The Late Payment of Commercial Debts (Interest) Act 1998 protects your business. It gives you the right as a creditor to recover compensation, interest and cost for unpaid debts. In addition, it discourages delinquent payments. Your company has a right to collection of the money owed, interest, compensation and costs. If your customer has not paid invoices, you can take legal action.
For payment recovery, speak with our debt recovery solicitors at Helix Law. It can be a single invoice. Or, it can be a business with a history of unpaid invoices.
The Process for Collection of Debts you are Owed
When your clients have unpaid debts, a debt lawyer can intervene. At Helix Law, our solicitors follow the guidelines set out in the Pre Action Protocol for Debt Recovery and other rules and protocols required by the Civil Procedure Rules (CPR). These ensure that you have met all legal requirements. These protocols and procedures then set a schedule for recovery of your due payment.
First, we will liaise between your business and the indebted party. Debt solicitors will contact the debtors on your behalf. Many people will pay their invoices when they receive a solicitor’s letter. An official telephone call from solicitors can also be the pressure they need. However, sometimes, debtors may challenge these claims. Sometimes the letters and calls may go unanswered.
If these requests fail to result in collection of the amount owed, we will take further action. This can involve checking the credit of the debtor. A credit check evaluates their ability to pay. Also, we will make additional attempts at contact and recovery.
If our solicitors can reach them, we will work with the indebted party. We will help your two businesses to formulate payment plans for full recovery of the amount owed. A settlement plan is often the best course of action for all involved. It allows both parties to avoid costly legal fees and court appearances. Otherwise, we can come up with a recovery solution that suits you both.
Legal Steps Toward Debt Recovery
Requests for discussion or negotiation may fail. In such cases, debt recovery solicitors can take further measures. One solution used by some debt collectors is serving a statutory demand. Statutory demands are serious. They are the first step toward serving a winding-up or bankruptcy petition upon the other party. It can lead to liquidation or bankruptcy for the debtor. However, statutory demands are only appropriate where the debt is not disputed – getting this wrong can lead you into costly mistakes. If you are considering a statutory demand then read this article on statutory demands first.
A statutory demand requires a response. Usually, the window of time is within three weeks from the date served. This is the first step toward forcing a business into liquidation or an individual into bankruptcy over an unpaid debt. However, a demand ending in liquidation or bankruptcy is not ideal for your business. Bankruptcy means it is likely that the debtor will not be able to pay all or any amount of the sum owed.
Sometimes debtors enter into a CVA to avoid insolvency proceedings. A CVA sets up a monthly payment plan between the debtors and all creditors as long as 75% of the creditors agree to it. A CVA lasts until the business has cleared their debt. Ultimately, a statutory demand doesn’t have to end in insolvency or in court. However, it will necessitate action from an unresponsive debtor. Great care should be taken with statutory demands.
Debt collection solicitors can pursue other enforcement methods. One solution is to require the indebted party to appear in court by issuing a county court claim. If you obtain a Judgment, a debt lawyer can also help you apply for a Third Party Debt Order. If the debtor has assets, our solicitors can apply for a charging order to secure the Judgment against those assets – usually a property. Applying for an attachment to earnings order may be a good option for recovery of the amount owed, if you know who the debtor’s employer is.
Why Choose Debt Solicitors over Collection Firms?
Debt recovery can be a complex process. Our solicitors will work with you to find the right solution for your unique case. Debt recovery companies cannot offer the whole service. If their demands don’t work they will usually refer you to a solicitor for court action. If you use Helix Law we take the debt from start to finish, making recovery faster and more cost effective.
At Helix Law, our debt recovery solicitors will help you get back the money you’re owed. As debt lawyers, we can offer a wider range of options than debt recovery firms.
Often, debt recovery firms cannot handle the complex legal situations of collection. As outlined above, the recovery process is often quite complicated but debt collection solicitors can manage the intricate legal processes. It requires clear communication between all parties. In addition, it involves tracking down debtors. Sometimes it is necessary to file applications and petitions at court. Debtors can challenge these collection claims. This can happen even when you are in the right.
Debt recovery firms cannot always pursue all legal actions to combat these claims. However, a debt lawyer can. Our team of debt solicitors at Helix Law has years of experience. We have the legal authority to effectively navigate this process. Above all else, we keep in mind your company’s financial situation.
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People frequently tell us that we’re approachable and offer great advice.
They also tell us most solicitors are hard to get hold of whereas we’re happy to listen. The reason for this is that we value long term relationships and we’re happy to speak with business people, to invest our time in understanding your business and whatever your concerns are. Only at that point can we understand whether we’re the right people to help you.
Frequently Asked Questions
- If the expenses incurred by pursuing the recovery of the debt are worth the amount in dispute. With the Helix zero risk option the debt is always worth pursuing if the debt is greater than £1,000. If you don’t get paid, we don’t get paid.
- If you choose to write off small debts (usually under £1000), whether this could set a precedent of late or non-payment to other debtors.
- Before writing off a debt think about how much work you would have to do to replace that bottom line profit. If your profit margin is 10% then writing off a debt means you have to do 10 more jobs of that size to replace that lost profit.
- If you have thoroughly investigated why the debtor has not yet paid – there may be a dispute regarding the quality of the goods or services you provided; or the debtor may be in financial difficulty (in which case you may negotiate a payment plan, part-payment, extending the payment deadline, or writing off the debt)
- Whether there are any pre-existing County Court Judgments (CCJs) against the debtor which may impede the likelihood of recovering the debt
- Whether the debtor has secured a Debt Relief Order, which could impede your chances of recovering the money. This means that their financial situation currently absolves them from being able to settle debts.
- Individuals or small businesses are more likely to have financial difficulties – you should consider whether they will have the means to pay the debt even if you do win in court against them. In the case of individuals you should check to see if they own their own property. If they do you are much more likely to recover payment.
- Sole traders have personal liability for debts, so could be worth pursuing if they have significant assets. However, some company directors have been known to use the protection of limited liability in their favour to get out of paying what they owe.
- Large organisations may attempt to use their financial advantage against you, and threaten to take away their custom, routinely drag their heels in regards to payment, or prolong court disputes to dissuade smaller companies from taking action against them. It is also worth keeping in mind that the larger the organisation, the higher the likelihood that debt problems arise from internal communication issues. Helix Law specialises in helping SMEs take on bigger organisations and getting payment. We do this with expertise and a willingness to work on a no win no fee basis.
In these situations, talk to the debtor and negotiate a plan for part-payment or rescheduling of debts, ensuring this plan is put into writing. This way, you might recover at least some of what you’re owed in the meantime. Willingness to compromise will also help to maintain a good relationship with the customer, especially if their financial issues are temporary. Be careful what you agree to and, where possible, ask a director for a personal guarantee. If the directors won’t give it then you have strong indication that the debt won’t get paid. In these circumstances acting swiftly can mean the difference between getting paid or eventually becoming an unsecured creditor in a liquidation.
The Late Payment of Commercial Debts (Interest) Act 1998 covers commercial debts, even when there are no agreed terms of credit. The Act allows the charging of interest at a set rate, calculated by the Bank of England base rate in addition to 8% from the end of a credit period (usually 30 days). The same act allows you to recover compensation on each unpaid invoice; £40 for debts less than £1000, £70 less than £10,000 and £100 for all other debts. In addition, a contract can specify the right to recover costs incurred while chasing overdue debts. This is particularly useful if the debt is £10,000 or less because it will avoid the Small Claim limit for recovering legal costs. Nevertheless, costs are always at the discretion of the court. It should be noted, however, that in practice, generally very few firms enforce interest payments or recovery costs, unless the dispute is taken to court. If you do intend to enforce interest payments on overdue debts, you should make this clear in your contracts.
If these steps fail, you can escalate your payment request to senior people within the customer’s organisation (if it was a business-to-business transaction). For instance, you could formally notify the financial director, who may instruct that payment be made to you faster. Sometimes, a polite high-level approach (e.g. from your managing director to theirs) yields better results than dealing with company representatives.
If you wish to do business with this customer again in the future, maintain a professional and reasonable approach. A dispute such as this, when kept amicable, does not have to mean the end of your business relationship, even if it culminates in a legal case. You might want to emphasise that you have performed your end of the deal for which you are seeking payment, and that you wish to continue the mutually beneficial and friendly partnership you have enjoyed until now.
But remember: with each day that passes, your chances of recovering the money decreases. If you have tried several different routes of recovering the money to no avail, it may be time to contact a solicitor.
Don’t issue a claim unless you have followed the relevant pre-action protocol http://www.justice.gov.uk/courts/procedure-rules/civil/protocol and/or observed the Practice Direction for Pre-Action Conduct http://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct
Reaching out to a solicitor can prompt your debtor to pay you back faster. If your solicitor issues them a formal letter specifying a timeframe for repayment before a legal case is opened, the debtor may act to avoid going to court. Helix Law send that first letter for free and only charge 10% of anything paid as a result of that letter.
However, it is advised that you first attempt to resolve the matter amicably with the customer, negotiating payment options, before contacting a solicitor if you value the debtor as a customer. Just don’t leave it too long.
The first step is to contact a solicitor and have them send the debtor a formal letter requesting that the money is repaid immediately (or within a reasonable timeframe) with legal action being taken if payment is not received. You can decide on a date with your solicitor as to when legal proceedings should begin in the case that you do not receive the payment, and the letter must specify this. You can choose to send the letter yourself, but it is likely to be taken more seriously if it is sent by your solicitor.
If the debtor does not respond, you can issue a county court claim. Only do this if you are advised by a solicitor that you have a strong case and sufficient evidence (e.g. contracts, receipts, copies of correspondence), or you could be saddled with expensive legal fees and no success in court due to insufficient evidence. Even if you issue the claim yourself and have no legal fees you will be expected to pay the debtor’s legal fees if you lose. Sometimes you can lose on a technicality because you do not understand the court process. Find more information from Helix Law on Contract Law here.
If your claim goes to court, it will be assigned to a ‘track’:
- Small claims track: small-to-medium claims (up to £10,000 of disputed debt) will usually be settled in a County Court. This is generally an inexpensive and simple procedure. Beware, you can start a small claim and the debtor can bring a counterclaim greater than the limit for small claims and you will then be at risk of paying your opponent’s legal costs.
- Fast track: debts between £10,001 and £25,000 will also be settled in the County Court
- Multi track: debts exceeding £25,000 may be issued in the High Court, which can incur significant expenses, last much longer and become more formal and complex.
An alternative route for reclaiming undisputed debts (not contested by the debtor) of over £5000 is to issue a statutory demand. This is a formal payment demand that usually demands that payment is made within 21 days. If the money is not repaid within that time frame, you may petition the court to make the individual bankrupt or to ‘wind up’ the debtor company – this can sometimes be more effective than standard court proceedings. However, this route is not effective when the debt is disputed. You must be very careful not to use this process for disputed debts for reasons set out here.