Draft winding up petitions result in payment of 4 out of 5 debts, so why wait on a statutory demand? Statutory demands, or stat demands, are usually the first stage of an insolvency process. It is a formal request for payment of an overdue debt and can be used against a company or an individual. The creditor serves it on the debtor, and sits back to wait for the money to come in.

‘Wait’ being the operative word here as the demand allows a full 21 days from the date of service for the debtor to pay up – and that’s assuming they are both willing and able to pay.  As such a stat demand is not always the quickest solution to payment problems and getting your debts paid – there’s just not enough urgency behind it to grind the debtor into paying up quickly. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.

While in some cases, stat demands are the best option – for example, they are required for insolvency of individuals, in most cases, it’s fair to say that a stat demand simply gives the debtor too much time.  You have already waited beyond your payment terms for money due, chased, chased again, and again to no avail.  Why offer a further 21 days on top of your usual payment terms – terms they have already blatantly flouted – when you could demand payment within 7 days and then take them to court if they still don’t pay?

If the debtor has already used up the time allowed in your payments terms, showing no intention of paying or disputing the payment owed, a draft winding up petition against a company is usually the more effective solution for finally getting the outstanding invoice paid. 

Draft winding up petitions can give the debtor 7 days to pay. Added to this, it comes with a warning that if no payment is made, the petition will be presented to court as a request to dissolve the company which is clearly unable to pay its debts, in order for the creditor to recover the debt.

At Lovetts, we have found that when we issue draft winding up petitions on behalf of our clients to their debtor (not yet presented to court) – they have a remarkable success rate, prompting payment in 81% of cases. 

If a statutory demand has been issued and the debtor company does not respond within the 21 days, the next stage is usually a winding up order – this effectively means the debtor has an extra two or three weeks to hold on to your cash. However, you can speed up the process by using a draft winding up petition, and as stated above, a draft winding up petition prompts immediate payment in 4 out of 5 cases. 

Key Points

Related article:

How To Shout The Loudest In Debt Recovery

Winding up petitions are all-too-often overlooked by businesses as an effective way to chase up and secure overdue payments from debtors. We have found that draft winding up petitions have an impressive 81% success rate in commercial debt recovery, usually due to the simple fact that it shows you are serious about recovering the money owed to you read more

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If you go to court to collect money, the burden of proof is on YOU to prove the defendant owes it. That means you need to present a watertight portfolio of evidence in order to get the judgment you want. The best evidence by far is a written contract, but even these can contain ambiguities about who is liable. Just look at this scenario:

Imagine an employee of a company called Kwality & Klass Kitchens Ltd places an order for 100 metres of specially engineered copper pipe. You agree to supply the pipe but you do not receive payment. However, there’s a further problem… That’s because it isn’t clear whether the employee who placed the order was acting on behalf of the company or himself. In fact, the company asserts that the employee was acting as an individual rather than as a representative of Kwality & Klass Kitchens.

So who do you pursue in this situation? Is it the employee personally or Kwality & Klass Kitchens? Well, it’s a matter of interpretation for a court, based on evidence and sources of law. This means that if you have identified the wrong party in your claim, then you have wasted time and money trying to get back what you’re owed. Furthermore, you may have to pay costs on behalf of the other side for the failed action.
Importantly, a court will want to see a paper trail that identifies the contracting party. In the absence of such a trail, the court will hear oral evidence given by both you and the defendant. The problem with this is your chances of success are dramatically cut to around 50/50. That’s because the winner will be the party whose oral evidence the court chooses to believe.

We often see disputes of this nature… As a result, here are some useful tips for creating a legally admissible paper trail that could save you a lot of hassle and expense:

•  Request that a signed credit account application is completed which clearly identifies the contracting party.

•  Ensure the employee clearly indicates against his or her signature the capacity in which he or she is signing the contract. 

•  Insist the buyer raises a purchase order for your records that identifies who is ordering the goods or services.

•  Send across an order confirmation message containing the name of the contracting party.

•  Include a reference of your terms and conditions applying at the bottom of all documents and communications in order to ensure incorporation. 

•  If you require additional security from a company, before letting them have credit, obtain a personal guarantee signed by a director personally or alternatively a parent company guarantee. 

If you are sometimes unsure about the identity of the person or organisation with whom you have contracted, or if you are sometimes owed money that is disputed, then our Unlimited Legal Advice package ensures you have a solicitor on hand to help you… And that could save you money in the long run… 

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Debt collection calls, whether you’re making them or receiving them, are loathed by many but are vital for any business wanting to keep their cash flow healthy. Calling for unpaid debts needn’t make you the bad cop and if you’re ever at a loss for words mid-call we’ve got a few phrases and tips to help you.

The Introduction

If you were calling for any other reason, introducing wouldn’t pose such a problem; however when it comes to a debt collection call this simple ‘hello’ may feel a little awkward. You may also be worried that your calls will be blocked left, right and centre.

Here’s what we would say if talking to the person responsible for issuing the payment:

“Hi it’s John Smith from , I hope you’re well. I noticed you’re behind with your payment. Was there an issue with the invoice that I might be able to help you with?”

Remain polite and positive when talking to your debtors and do not make any assumptions before finding out why the payment is late. It may turn out that some miscommunication has occurred and your debtor is in a position to issue the late payment immediately.

Here’s what we would say if talking to a secretary:

“Hi it’s John Smith from Lovetts. Is it possible to speak to Paul Jones regarding an invoice please?”

If your call is picked up by reception and you’re asked what the call is regarding, say it’s in reference to an invoice. If you use words like ‘unpaid debt’ or ‘late payment’ the person on the other end of the line may not respond to you as well and feel on the defensive from the start of your call.  

Let Them Talk

Your first call with a debtor is your opportunity to remind them of an outstanding invoice and to find out why that is. During this call you should encourage your debtor to do the talking while you listen and take notes for your records. There’s no harm in showing your more caring side by listening to the details of why the payment is late, and ensure the person you are speaking too doesn’t feel pressured as a result of the unpaid debt.

Here’s an example of what we would say:

“Sorry to hear that, can I provide you with further information to help make the payment?”

Don’t Hang Up Without Summarising Next Steps

Before the call ends; be sure to verbally sum up what you have both discussed. These should include confirmation that the payment is late and why, when the payment will be received and by what means.

Here’s an example of what we would say:

“Thank you so much talking with me today. For my notes it would be great if I could recap what we’ve discussed. So, unfortunately the payment is late because the cheque was lost in the post and you will have payment to us by Wednesday 11th May via a new cheque. Have I missed anything?”

Get It In Writing

If the debtor does not dispute the invoice and has provided you with an excuse for paying late, ask if they can confirm their reasons and a date for when payment will be made. Anything you receive in writing will be extremely helpful as evidence should you have to go to Court at a later date. If the debtor does not put it in writing to you, you can put what you discussed during the telephone conversation in an email to them. If the debtor does, not respond contradicting your telephone note, this will be very valuable evidence at a later date.

Calling Twice

The ideal scenario when making a debt collection call, would be to only call the debtor in question once. Unfortunately it may take a few calls to ensure payment is made. Before making your second call ensure you have your notes to hand from the first call, so that you can follow up on the actions discussed. If possible, and if the debtor has good credit, you could use this call to discuss other options to help speed payment along.  

Here’s an example of what we would say:

“What if we come up with a payment plan, would that help?”

Final Tips

•  Keep communication open with your debtor.

•  Follow up on the actions agreed with subsequent debt collection calls if needed.

•  Don’t get sidetracked – stay focused on collecting your unpaid debts and not blurred by multiple reasons behind a late payment or let your emotions (if feeling frustrated by the situation) get the better of you.

•  Keep your records up to date and take notes from each call with your debtor.

Debt recovery for the education sector is a varied and complicated issue, particularly for the higher education sector including universities and distance learning providers. Overdue payments can range from library or parking fines, to unpaid accommodation or even tuition fees. At a time when education system budgets are under severe pressure, it is of the utmost importance for any institution to stay on top of its cash flow and secure any late payments through a debt collector.

Lovetts recently helped one provider of professional education secure overdue fees from a former law student who owed in excess of £3,300.

The education provider, a degree awarding body for business professionals including those entering the legal profession, refused to release the student’s results after he failed to pay his latest fees. When the university took the student to court to secure the overdue funds, the student argued that the delay in results had caused him to suffer loss, and he should therefore not have to pay.

Our advice based on extensive experience of collecting debts for education providers, was to make an application for Summary Judgment because the issues raised by the Defendant had no prospect of success. Lovetts prepared the application, and gathered all relevant evidence before submitting it to the Court with all relevant legal arguments.

With his own knowledge of the law, the Defendant attempted to avoid payment and the court hearing, and in fact even went so far as to appeal the Court Order which was made. However, at the hearing, the Judge was fully satisfied that the Defendant had received the benefits of services provided by the university, and was indeed fully aware that the balance of fees must be paid before results would be released. As such, the university was awarded judgment for the full amount due, plus more than £3,000 in costs and late payment interest.

Cases such as this, with multiple defence strategies exercised, demonstrate the benefits of employing a legal representative with detailed knowledge of debt recovery, and of the relevant industry. Lovetts has worked with education providers for many years, and is able to use its experience and expertise to benefit these clients and help win cases and secure much-needed overdue payments

This case was handled by Sarb Dhaliwal – Chartered Legal Executive

You certainly know that chasing late payments can prove to be an incredibly time consuming and frustrating process. Credit controllers and account receivables work hard to guarantee the business has enough working capital, but with certain debts their options start running out. It is at this stage that a solicitor must be instructed to set the stage for potential legal action – at a price.   

Who Pays For The Legal Costs?

It’s not fair that your business ends up having to pay to chase a customer that is holding on to money that is rightfully yours. If your company has a clause in its terms and conditions that specifies the rate of interest that will be applied if a customer pays late, and makes no reference to the fact you will claim your costs of chasing late payment, it is likely you will be footing the bill for legal and in-house debt recovery costs. However, this can be avoided by amending this clause to utilise the Late Payment of Commercial Debts (Interest) Act 1998 (‘Late Payment Act’) and including a provision that allows you to recover your costs of chasing late payment. 

Ensure you can have COST-FREE debt collection by incorporating these T&C clauses in your contracts and invoices.

How Will This Support Your Business?

The Late Payment Act allows you to claim compensation of between £40 – £100 on each invoice that is paid late. In addition, you can claim interest 8% above the Bank of England base rate. All companies should apply a costs recovery clause in their terms and conditions. Don’t forget that your costs are not limited to the legal fees but also include the in-house expenses and time spent chasing debts prior to instructing a solicitor. Including a provision for reasonable costs will protect your business from losing money when customers don’t pay on time.   

Can Companies Really Achieve A Cost Free Debt Collection Service?

Absolutely. Look at the example below and check how applying the late payment law makes a big difference when recovering debts.  EXAMPLE: Example A illistrates a debt where the client is unable to utilise the Late Payment Law. However, Example B shows the compensation and recoverable costs that could have been recovered if the client were able to utilise the Late Payment Law. 

 Example A  Example B  Difference  
_______________________________________________  __________  __________  
Original Debt (incl. interest 8% above base)  £4,861  £4,861 £0 
Compensation Claimed£0 £180  £180 
Costs Under Contract/Late Payment Act Claimed£0 £150  £150 
CPR Recoverable Fixed  Solicitors/Court Fees £290 £290 £0 
Solicitor Costs Outside Recoverable CPR Fixed Costs– £150 – £150  £0 
______________________________________________  __________  __________  
Total Paid  £5,151    £5,481  £330  

  In the example above, the Late Payment Act enabled the company to recover £330 in excess of what they would have recovered if they weren’t using the Act. This not only enabled them to cover the £150 costs that fell outside the fixed costs recoverable under the Civil Procedure Rules but it also resulted in an additional £180 in Late Payment Compensation to cover the in house credit control costs of the Company.  Sometimes it is true that you may need to avoid straining a relationship with an important customer but, in general not charging these legal costs is a mistake as, by law, it’s money that belongs to your company.   

Late payment for goods or services can be fatal for your business. That’s because financial liquidity is the oxygen that any business needs to survive. However, there is something you can do… Just take a look at Jane’s story: 

Jane runs an artisan chocolate studio and was thrilled when a buyer from upmarket department store POSH ordered 10,000 Easter eggs. It was a huge order, but Jane managed to fulfill it by taking on extra staff. Easter came and went, and all the evidence showed that the product had been a big success – completely selling out. There was just one problem… Jane still hadn’t seen a penny from POSH, despite sending her invoice months ago. As the year wore on and payment still wasn’t made, the business began having cash flow problems. In fact, it looked like it could go under because of the late payment from POSH. That autumn Jane bumped into her old university housemate, Celeste, and the pair went out for lunch. Jane knew that Celeste was now a solicitor, but hadn’t realised the relevance for her situation. As Jane explained about the problem with POSH, Celeste’s expression became quite stern. “You can’t let them do this to you, Jane. This is your livelihood that’s at stake. You have to take legal action” – Celeste exclaimed. “But I can’t afford to go through the courts and take on the might of POSH” – Jane lamented. “Yes you can. There’s a law on late payment that is designed to protect people just like you – I use it all the time at work” – Celeste said. And sure enough she was right. 

The Late Payment of Commercial Debts (Interest) Act 1998 was exactly what Jane needed to assist her in her debt collection efforts. Not only did she recover the full sum of the debt but she also received interest at 8% above the base rate, plus late payment compensation.

In addition to that, the Act allowed Jane to recover all her Solicitor’s costs plus her own in house administrative costs relating to the debt recovery process. What’s more, once POSH received the Solicitor’s Letter Before Action (LBA), it paid immediately, which meant nobody had to go to court. If you are in Jane’s position, then don’t let the situation continue a moment longer!

Click the link below to get your demo login and check out how CaseManager gives you complete control over your cases – 24/7.

•  Issue instructions at every stage of a case
•  Instruct on payments, credits and write-offs
•  Receive prompts when your input is required
•  Discuss cases via internal messaging system
•  Comprehensive reporting
•  Download case documents (letters, email, etc)

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Late payment and debt recovery are regrettable but inevitable aspects of business life that are likely to continue for the foreseeable future; the debt recovery process is not one that any supplier wants to find itself caught up in.

Suppliers are understandably fearful of tainting their customer relationships and Lovetts works hard on behalf of its clients to protect these relationships during any debt recovery process in which we are instructed. However, we also know that the best way to protect client relationships and keep cash flowing is to avoid issues of late payment from the outset. That’s why in addition to the battery of free content we provide to help with this we also believe that a new service called The Prompt Payment Directory has the potential to make a significant impact in this area. 

The Prompt Payment Directory is an online platform that helps UK business mitigate the problems of late payment by collecting and redistributing crowdsourced contextual data around individual instances of late payment. The two key elements here are ‘crowdsourced‘ and ‘context‘. 

By crowdsourcing data from suppliers this means that instead of relying on debtors to report on their payment practices suppliers become the primary source of data and in doing so take back control of the situation. In exchange for posting their first notice on the directory contributors receive their first 12 subscription for free. Data is submitted via a form and contributors are asked to give a reason as to why they were paid late. These will generally be the explanation provided by the debtor. This provides the vital context. 

Subscribers to the service, including all contributors, will benefit from this pool of knowledge as it grows because it will help them understand more about their potential customers and thus know which questions to ask in order to avoid being paid late. 

Don’t ‘Name and Shame’, do ‘Share and Declare’

While The Prompt Payment Directory permits contributors to post notices anonymously it does so only to protect those much valued customer relationships. The site does not permit contributors to run amok by posting what they like and submissions can only be made by a carefully structured closed format form which minimises abuse. Additionally contributors have full control and are free to delete their submissions at any time. The aggregated data is not on public display and it is only accessible to contributors and subscribers. 

Transparency

It’s clear to see how this service has the potential to genuinely deliver on the promise of greater transparency which the business community has been clamouring for, but to do so suppliers need to wrest back control of the narrative by becoming the primary source of data and not leaving this to the debtors. Ultimately this process can be good for both suppliers and debtors that genuinely also want to see change.It is the difference between the old way of dealing with the problem and the much talked about but little practiced “change in mindset“.

Winding Up Petitions are all-too-often overlooked by businesses as an effective way to chase up and secure overdue payments from debtors. We have found that Draft Winding Up Petitions have an impressive 81% success rate in commercial debt recovery, usually due to the simple fact that it shows you are serious about recovering the money owed to you.

Only to be used for undisputed debts, Draft Winding Up Petitions help you to shout louder than other creditors who are likely to be chasing overdue payments at the same time you are.

What makes a petition of this type different from other debt recovery tools is that it is used when a company is unable to pay its debts on demand – deeming it technically insolvent. Although other tools such as letters before action are also popular and helpful in many situations, winding up petitions usually get the best results when a company is genuinely struggling to pay its debts, as opposed to delaying unnecessarily.

Ensure you can have COST-FREE debt collection by incorporating these T&C clauses in your contracts and invoices. 

Winding Up Petitions, also known as compulsory liquidation orders, are drafted by a solicitor and accompanied by a letter to the debtor requesting payment within a certain time period – usually 7 days. A warning is also included, stating that if payment is not forthcoming, the petition will be presented to Court. This almost always has the desired effect, as the debtor will of course want to avoid the cost, stress and inconvenience of going to Court. In order to present the petition to Court, the debt must be worth more than £750 and you must be able to show that the company is unable to pay its debts. There are many different debt recovery tools and techniques, and a debt recovery solicitor can advise on which would be most likely to succeed, and most cost-effective, in your specific circumstances. 

Key points:

Is chasing late payments getting in the way of your other business priorities? Our handy free guide will provide you with 10 tips and insights to help you reduce those issues. DOWNLOAD FREE 

Why Draft Winding Up Petitions Get Debts Paid Faster Than Statutory Demands

A stat demand is not always the quickest solution to payment problems – there’s just not enough urgency behind it to grind the debtor into paying up quickly read more

When you have multiple debts, there is no need to submit them to us one by one. You can take full advantage of our online CaseManager facility and request a Letter Before Action for multiple debtors in one single batch.  

A number of our clients use this method and it saves them a considerable amount of time. You can do the same by following these steps:

1. Login to CaseManager and start by selecting Submit Case along the top navigation bar. 

2. Click on the second option – Import a batch of UK LBAs. 

3. Download the Excel Template and use the instructions if necessary. 

4. Fill your company details in the first Excel tab form including the payment deadlines and letter type.

5. Enter debtor details in the respective columns. 

6. Once you have completed the spreadsheet, send it to us by email to [email protected]. 

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For many businesses, it is no longer favourable to be locked into one contract for a service. Instead, companies are employing two or more suppliers for the same service. Those who adopt this strategy say they are able to negotiate costs more effectively and have seen an improvement in the quality of the service they receive. They are also typically in a better position to manage cash flow and initiate a contingency plan if a supplier isn’t able to offer the agreed service at short notice. An increasing number of companies are adopting this dual supplier approach and are enjoying a wide range of benefits as a result.

Benefits of having two suppliers include:

Contracting two suppliers for the same service gives an employer greater leverage when it comes to finding the best vendors in a particular field. A study by ISG Director Michael Kushner describes the use of multiple suppliers as an “agile” practice and one that has evolved from a maturing outsourcing market.. He suggests that companies who manage vendors in this way “enjoy superior flexibility in their choice of sourcing solutions and demonstrate greater adaptability to changing business circumstances”. A second study by Chris Ford, Alistair Maughan and Scott Stevenson Morrison & Foerster LLP found that using more than one supplier allowed businesses to better market test services, and that those who use this method purposely set up their various contracts to overlap and end in “waves” rather than consecutively – allowing companies greater choice and flexibility when it comes to managing and employing suitable vendors for their business needs. 

Having two suppliers offering the same service, allows companies to better protect themselves against unforeseen circumstances, i.e. if a supplier goes out of business or they are unable to supply what was agreed at the last minute. This is also another reason why an increasing number of businesses have made it a company wide policy to always contract two suppliers for the same service. 

A two-supplier policy allows a business to shop around for the best price and drive up competition between same service vendors, this can be very beneficial when it comes to finding the best value for money service. When adopting a multi-supplier strategy, it is encouraged to gather quotes for a 100%, 70% and 30% of the business. This will allow you not only to compare costs between your suppliers, but it will help you find the best split between suppliers to provide your service. Even if you stick to a single vendor approach, it is good business practice to find out what other suppliers are charging to ensure you are receiving the highest quality of service for what you are paying. Sarah Burnett, research director for Public Sector BPO at Nelson Hall, claims that this is one of two key drivers behind businesses practicing a dual supplier approach. The second instigator is said to be “a desire to adopt best-of-breed for a particular process or domain and ensure access to superior capability”. 

Those who employ two suppliers for the same service maintain that the healthy competition between vendors has improved the quality of service received and has increased response times. It also allows a business to compare services and enjoy the freedom to explore new suppliers (if the service supplied isn’t satisfactory).  

Our Experience As A Buyer And Supplier

As a buyer we implement a two supplier policy throughout the business. Whether it be a trace agent or High Court Enforcement Officer, the policy has allowed us to compare service levels and performance ensuring we maximise our debt collection success. As a supplier, we have seen some clients use us as a sole debt recovery supplier and as part of a two supplier policy. For example a large Credit Insurer, and client of Lovetts, has operated a two supplier policy for their debt collection solutions with success. Equally, an NHS Hospital also experimented with dual sourcing, to investigate whether their sole supplier at the time was the best choice for their debt recovery requirements. They employed Lovetts as a second supplier and found that Lovetts significantly outperformed the debt recovery vendor they had relied on for their debt collections. As a result, they made Lovetts the main supplier. However, if they had not trialled Lovetts as a second supplier, they would not have known that there was a better service available for their debt collection needs. Does a two supplier policy work for your business? We would welcome your thoughts.