Cash flow difficulties are the leading cause of company failure in the UK. With approximately 1 in every 127 active Companies going into liquidation in the last twelve months and a recent survey indicating that 71% of businesses in the North West are not receiving payments from their customers on time, active debt control definitely remains king for British businesses.
The first port of call when chasing debts is to try and speak with your debtor. Reaching agreement not only secures payment but also maintains the relationship and future business. It may be that they would like to discuss paying in instalments due to financial difficulty and you may need to take a view that some money is better than none at all. Ensure that when negotiating payments, you keep copies of emails, letters and details of telephone calls as these may be required if you need to pursue further action.
Before speaking to your debtor(s), it is important to understand your Terms and Conditions of business. You need to be sure of the timelines in which payment should be made and the interest to which you are entitled where invoices remain unpaid. These items are dependent on the original drafting of your Terms and Conditions of business. If you are experiencing particular difficulties in the collection of payments, it may be that you should review your Terms and Conditions of business, perhaps tightening payment terms or revising your policy on interest payable on outstanding invoices.
It is also essential when opening a customer account to know who your customer is – be it a sole trader, partnership or a limited company. Unless this is clear from the outset, you could end up chasing the wrong person and having claims struck out at Court.
If you are unsuccessful in recovering your debts, a formal letter from your solicitor demanding payment is often successful after which you can pursue the matter further by way of court proceedings or winding-up/bankruptcy proceedings.
Many firms of solicitors, including ourselves, now offer online services for debt recovery, allowing a cost effective way of recovering your debts.
When taking further action, always try to maximise what you can recover. Creditors are entitled to recover compensation (up to £100) arising out of late payment together with interest in accordance with the standard terms and conditions of business or alternatively you can recover interest pursuant to The Late Payment of Commercial Debts (Interest) Act 1998 at the current annual rate of 8.5%.
Whilst there is often a genuine reason for the late payment of invoices, the recession has undoubtedly had an impact on the speed in which payments are being made. Staying on top of your finances and chasing debt in a timely and structured manner could make a significant impact to the overall health of your business.
If you wish to discuss any of your debt recovery issues with one of our specialist solicitors then please call and we will be happy to help. Alternatively, our online debt recovery resources, specifically tailored for simple, uncontested business debt, could help.