Business Debt Recovery

All businesses eventually have to take steps to recover unpaid invoices. Debt recovery companies can do very little if the opponent wishes to defend the claim and/or has a counterclaim. At that point the debt recovery firm will refer you to a solicitor and the costs will begin to increase – you will also have to explain your case again to a new person. When you look at debt recovery firms they quote prices for ‘undefended claims’. Usually, you don’t really need any help for an undefended claim; it’s when they are defended that things get complicated.

We believe that by offering simple debt recovery all the way through to court (if necessary) we provide a faster, more effective and often cheaper service.

We will be able to structure fees to suit you. If you have any questions do not hesitate to get in touch, or alternatively visit our Small Claims Fixed Fee page.

Solicitors' Debt Recovery Letter - 10% of the sum recovered - minimum debt £2,000

In God we trust and money upfront. In the real world businesses have to extend credit. When it goes wrong many don’t know what to do.

We recommend that you avoid going to debt recovery companies and instead go straight to a debt solicitor – here at Helix Law, we can help with business debt recovery cases. Our service starts with a zero risk option.

Here are some important things you should know about recovering debts.

FAQ

Should I always pursue unpaid debts?

It is very frustrating when money owed to you is not paid within an expected or agreed upon timeframe. However, when deciding to pursue unpaid debts, you should consider:

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.

Does it make a difference if my debtor is a large company or an individual?

Put simply, yes. When considering whether to pursue money owed to you, many of the factors listed above come into play depending on the debtor’s financial situation.

Things to consider:

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.

Should I compromise when attempting to recover debts owed to me?

In some cases, compromising may help you recover at least some of the money rather than none. There is little point in demanding full immediate payment if the debtor is in a position where they cannot pay.

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.

Can I claim interest on overdue debts?

A compromise or contractual agreement may allow you to claim interest on overdue payments. The original contract may stipulate credit periods and how interest may be charged when payment runs overdue.

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.

What should I do before taking legal action to reclaim debts?

Your company’s credit control policy should include a plan for chasing payments as soon as they are classed as overdue, such as sending email reminders, then telephoning the customer, etcetera.

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

At what point should I contact a debt recovery solicitor?

When you decide that the debt has been outstanding for long enough, or a contract has been breached, contacting a debt recovery solicitor is a good course of action. They can determine the likelihood that you will recover the payment through legal means and advise whether you could/should take your case further.

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. [cta]

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.

How do I begin legal proceedings for the recovery of debts?

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.