International debt collection might sound like mission impossible, but it really isn’t… With the right team on your side you can take decisive action and recover what you’re owed with very little hassle. So if you’re wondering how hard it actually is, simply take a look now as we shatter the five main myths.
You Have To Issue Court Proceedings In The Country Of The Debtor
If you have a jurisdiction clause in your contract then you can issue Court proceedings in your own country and make your country’s law stick. All you need is a court at the other end to recognise the deal you made enforce a Judgment you obtain. Even in China, where debt collection is technically illegal if you are not a licensed law firm or lawyer, you can still take matters to court. In fact, with increasing amounts of international business being done in China, some Western solicitors are even opening branches there.
If A Debtor Doesn’t Speak English You Have No Chance
English is the international language. Therefore the chances that nobody in a debtor organisation speaks it are almost non-existent. Of course, some uncooperative debtors may claim not to speak English. But don’t despair because in these rare cases a good solicitor will have trusted agents who speak the local language. As an example, we have been able to recover payment of debts in 104 countries to date.
It’s Better To Just Write Off The Bad Debt Against Tax
Cash in the bank far outweighs any tax relief you will receive on a bad debt. That’s largely because reported losses will make your firm look weaker on paper, affecting your ability to secure investment and credit in the future. So even if the debt has already been written off, it’s still worth referring the matter to no-win-no-fee solicitor. What have you got to lose?
Bank Charges And Solicitor’s Fees Will Swallow The Debt
Your international debt collection solicitor should make all charges clear from the outset. Plus, he or she may accept your case on a no-win-no-fee basis. Importantly, your solicitor will also use the most cost-effective channel for the eventual money transfer. That’s because solicitors are duty-bound to act in your best interests.
It Will Take Years To Get Your Money Back
Of course, some cases are more complicated and protracted than others. However, a vast majority of international debt collection claims can be resolved in a relatively short time if your solicitor specialises in this area of law. Nowadays a typical case takes only two or three months to reach a successful conclusion. And that’s it… Those are 5 myths about international debt collection dispatched. We hope you have found this blog helpful when it comes to your international debt collections.
Late payment is a common problem for all businesses. Large companies aren’t excused from urging businesses to pay suppliers on time and calling for small firms to pursue those who put them at risk by delaying this frustrating everyday occurrence either, and they too face the battle to receive payments on time. Here we reveal the most common excuses for late payments and how you can deal with them.
The Invoice Seems To Be Missing
Whether it was the office dog who ate the invoice or sheer negligence, lost invoices appears to be the most common excuse for payment delays according to research from credit control business Satago. Keep a paper trail of when you sent an invoice, and all your communication with a debtor – just be sure that you did in fact send the invoice. These days many businesses operate digitally – so make sure you email invoices to the correct department, with the relevant booking numbers included, to make payments easier. To be doubly sure of receipt: it never harms to send it in the post too. That way debtors have no excuses.
I Thought We Had 60 Days Not 30!
If your T&Cs don’t clearly state a payment period, you could be at the receiving end of this excuse. Business and Enterprise Minister Mark Prisk, from the Department for Business, Innovation and Skills (BIS), says it is hugely important that all businesses, particularly small firms, establish clear payment terms to ensure they get paid on time and successfully manage their cashflow. When speaking with your debtors, remind them of your payment terms and the possibility of being charged interest under the government’s Late Payment of Commercial Debts (Interest) Act 1998. For invoices that are not paid on time, it enables you to claim interest, compensation and (for orders placed after 16 March 2013) your reasonable costs of collecting the debt where these exceed the compensation. Interest can be claimed at 8% over base together with debt recovery compensation at the rate of £40 – £100 per invoice.
We Definitely Didn’t Receive The Invoice
Receiving an invoice late or never actually accounts for 44% of the excuses given to small businesses awaiting payment, according to a recent survey by credit control specialist Satago. A lot of company owners, especially SMEs, just don’t like doing credit control. They don’t take it seriously and they don’t prioritise it”, says Steven Renwick, Satago’s chief executive.
I’ll Pay You When I Get Paid
Your debtors may genuinely be waiting on payment from another person or company. Agree a strict deadline as to when you expect payment and, again, remind them that you are entitled to charge them interest under the Late Payment of Commercial Debts (Interest) Act.
I Sent The Cheque Last Week
If a debtor has legitimately sent a cheque you should be able to track that in some way. Request the cheque number and, or ask your debtor to cancel the initial cheque and resend it first class recorded delivery. Once they have done so, insist on having the tracking number so that you can locate its whereabouts and ensure it reaches your office. For future payments, update your T&Cs to include details on sending cheques. State they must be sent recorded, first class and the cheque number and tracking reference should be shared with you as soon as they have issued the payment. Even better: ask them to pay by BACS so the money hits your account right away.
We’re Not Paying You
Your debtor may claim the work was ‘never signed off’ or simply refuse to pay without giving you a just reason behind their decision. If you find yourself in this situation, seek advice from a debt recovery solicitor who will be able to review your case in detail and guide you on how to collect your debts. To protect yourself against these types of claims in the future, ensure you have a signed contract before you begin work.
The Boss Is On Holiday, So We Can’t Pay
A business should still be able to operate in the absence of a boss, especially for such a short time frame as a holiday. Request, if you’re not doing so already, to speak to a senior member of staff. Advise them on alternative payment methods, if this helps them to action a payment. Gently remind them that their boss will probably not like the incurring interest on the late payment either if they continue to withhold.
Starting legal proceedings should always be the last resort when it comes to debt recovery. That’s because reminding a debtor of his or her responsibilities, along with the potential consequences of not paying, is often enough to secure compliance. In the final stage of correspondence this is done through a document known as a letter before action, or LBA.
However, if a matter still ends up in court, you will help your case by showing that you took all reasonable steps to avoid taking legal action. This is where a good LBA can help you even if it failed to secure payment beforehand. You see, a well written LBA will also contain a number of important details in order to give the debtor little or no room for manoeuvre when attempting to defend the action.
Sounds difficult? Well don’t worry because help is at hand. To make sure you get your LBA right, we’ve compiled a list of 12 things to include, and here it is:
- Ensure you use the correct address so the debtor cannot deny receiving the LBA.
- If sending an LBA by email, always get a delivery and read receipt to evidence the correspondence.
- Use a reference code that is easily identifies you and relates to your admin’ system.
- Similarly, always use a reference that relates to you within the debtor’s admin’ system if you have one.
- Be certain that you use the correct date.
- Make it absolutely clear that your aim is debt recovery.
- Always specify the exact amount that is outstanding.
- Notify how the debtor can contact you in case the amount owed is disputed.
- Include a payment deadline and explain the consequences of failing to pay.
- Also include any details of additional debt recovery fees, interest and/or compensation.
- Remind the debtor that any CCJ, if issued, will affect their credit rating.
- Specify how and where the payment should be made.
With these 12 important points included you should be able to construct an LBA that ticks all the right boxes. Alternatively, your solicitor may be able to send an LBA on your behalf. At Lovetts we give you the opportunity to download an LBA template to ensure you don’t leave anything to chance.
Free Letter Before Action Guide & Template
How to write the best Letter Before Action to recover your debt in 7 days!
If you are owed money that isn’t being repaid then you are probably wondering how you can get it back. The two main options available are debt collection agents and debt recovery solicitors. But which is best?- No doubt, solicitors sound more expensive, but what are the benefits of using a law firm? Join us now as we give you a rundown of the top five reasons why a solicitor could achieve more for you than an agent.
A Solicitor Can Activate Court Proceedings
Agents can only request that money be repaid. As a result, these requests are often ignored. Solicitors on the other hand can actually begin court proceedings against the debtor. And as you can imagine, formal notice of active proceedings can be far more persuasive than a mere request.
A Solicitor Knows Your Legal Position Instinctively
Debt recovery solicitors often resolve disputes swiftly because in most cases they can evaluate your legal position straight away. This means they’re more likely to accept any case that has merit. However, debt collection agents may turn a job down if it is disputed, even if the dispute is spurious.
A Solicitor Will Always See The Bigger Picture
If you’re in business you never want to alienate your clients. Thankfully solicitors are masters of the softly-softly approach, if that is what you require, which means you can maintain good relations after a debt is settled. Agents, however, sometimes preclude this outcome by acting too robustly, especially if they are working for incentives.
A Solicitor Has A Higher Duty Of Care
Solicitors are regulated by the Solicitors Regulation Authority and The Law Society. This means they have a solemn duty of utmost good faith to act in your best interests. In contrast, agents are regulated by the Financial Conduct Authority, which aims to protect consumers – in this case, individual debtors.
A Solicitor Can Help Protect You Going Forward
Unlike debt collection agents, debt recovery solicitors can help protect your business from the legacy of outstanding debts in the future. They do this by ensuring you use the right terms and conditions as prescribed in legislation. For example, with the right wording you can also recover any third party cost of debt recovery. So there you have it. That’s our rundown of the top 5 reasons why debt recovery solicitors are more useful than debt collection agents. If you are owed money and want to know more about our service, simply call us and speak to one of the team.
Unpaid debts are unfortunately an everyday occurrence for many business owners and finance teams. Debt collection can be frustrating, time consuming and can seriously affect cashflow. But no business can afford to ignore debt recovery. “SMEs are racking up a collective £10.8 billion a year in their attempts to recover overdue payments – that’s an average of almost £11,500 each, or £955 a month. A huge 80% of all companies which experience late payments say they are being kept waiting one month or longer beyond their agreed terms before receiving payment.” (source: Bacs) However, there are some simple steps you can take to recover your debts effectively and efficiently – let us sum them up for you.
Do Be Organised
Sending your debtors a friendly reminder a week before payment is due is a useful practice to adopt, as it will hopefully keep your invoice first in line to be paid. As soon as a payment is late, chase your debt in a polite manner. Follow up regularly with your debtors to encourage prompt payment and to ensure you or your team are speaking with the correct people.
Don’t Go Round There With A Baseball Bat
We understand how infuriating it is when a company or person owes your business money. Especially when you were under the impression that you had a good working relationship. We strongly advise not to get aggressive, if it gets too much, invest in a stress ball for your desk!
Do Keep A Collections Record
Time is money for any small business – and time spent trawling through email and paper invoices could be spent elsewhere in a business. So it pays to keep a ledger and record of your dealings with debtors, this leaves them with little to ‘push back on’ if they become late payers in the future. Keep a record of the time, date and what was said, each time you speak to your debtor. This will help with future communications, if it is claimed that your invoice was not received or it was not clear that payment is due.
Don’t Be Embarrassed To Pursue Debt Recovery Measures
Do Escalate It
Whether you’re the CEO or a Financial Clerk, outstanding debt is no laughing matter. The pressure to recover debts owing to your business can be enormous, and at times it can even feel like an impossible task. If you are owed outstanding debts, speak to a debt recovery solicitor who could collect debts on your behalf today – it could cost you less than a packet of crisps! We’ve found that over 84% of our Letters Before Action are paid without any further action being required. This is a formal letter that must be sent before any legal action is taken. For every £100 of debt recovered our clients pay on average just 35p.
Don’t Swear At The Debtor
Using profane language to get your point across will only make communications between you and your debtor more difficult. Refrain from sending threatening emails too, as these could be used as reasons to withhold payment. If you’ve already done that (oops) not all is lost. One huge advantage of using a debt recovery solicitor means you help detach yourself from the situation and any negotiations, which should hopefully take the heat out of the situation.
Debt Collection Clauses
for Terms & Conditions
Costs recovery clauses to assure a cost free debt collection service
A Civil Courts Structure Review – Interim Report published last month by Lord Justice Briggs has proposed the introduction of an online court and effectively raising the small claims threshold to £25,000.
The Civil Courts Structure Review was commissioned in July 2015 by the Lord Chief Justice and the Master of the Rolls, to coincide with a programme for reform of the courts by Her Majesty’s Courts and Tribunals Service (HMCTS). The interim report is one stage of the review which is due to be completed by the end of July 2016.
The review accepts that current court structure is antiquated and hampered by the reliance on paper-based systems and procedures. It suggests that full modernisation and reform is unachievable without up to date and efficient IT.
The report proposes the creation of an Online Court, which would be designed for the resolution of cases up to the value of £25,000. The Online Court would adopt a three-tier structure involving:
Stage 1 – An automated process using software to assist litigants in identifying the nature of and issues in dispute;
Stage 2 – A mix of conciliation/mediation and case management conducted mainly by a ‘case officer’ by telephone or online but not face to face; and
Stage 3 – A determination by judges either on the documents, by telephone, by video or face to face.
The report also proposes a centralisation of enforcement in the County Court. The time scale for implementation is 4 years, although the report accepts that this is an ambitious target.
An Online Court and a move towards a more IT focused and paperless Court system which improves the service Court users currently experience is certainly a welcome change.
However, the report proposes that legal costs would not be recoverable through the Online Court, effectively raising the small claims threshold to £25,000. The inability to recover costs from the losing party is contrary to other EU Countries such as Germany which allow fixed recoverable costs in litigated cases. Even the European Small Claims procedure which is designed for low value debts under €2,000 euros allows the successful party to recover costs.
If there was an opportunity to recover legal costs from the other side if they were successful with their claim or defence, even more people would opt to use legal representation. Instead people are missing out on the benefit of legal representation simply because they cannot afford to write off legal costs due to an inability to recover these costs from a losing party in small claims cases. The effective rise of the small claims threshold to £25,000 may further deny people access to legal representation. It does a disservice to our legal system which has built up a good reputation internationally and makes it less attractive to use compared to other legal systems.
Lord Justice Briggs has welcomed any comments in response to the report to be emailed to [email protected] by the end of February. Please feel free to download our response which was sent on 22nd February 2016.
Yes, I’d like to download your response to the report
by Lord Justice Briggs
We frequently hear about the extent to which late payment is damaging UK businesses. While laws are in place, few take up their entitlement and so far, despite various ideas, suggestions and initiatives there’s been little change to the payment culture in the UK. But the tide appears to be turning – and FDs may be the key to it all.
FDs are all too well aware of the impact overdue invoices can have on cash flow, creating a vicious circle with firms paying late; in many instances because their own customers are paying late.
Although there is a great deal of focus on the impact this has on small businesses – that’s certainly where the government is focusing its energy – almost every firm is affected in one way or another, even if it’s just the fact that they have to pay people to chase payments day in, day out.
There is also the reputational cost to consider as the poor payment practices of big firms and imposition of unfair terms by some of the larger retailers are being exposed. But even this doesn’t appear to be changing behaviours. The practice of paying late has become ingrained in business culture. It’s no surprise then that efforts to change the culture has so far failed to yield any noticeable change.
The late payment legislation already in place to deter late payers is seriously underutilised (the Late Payment of Commercial Debts (Interest) Act 1998). Our own polling shows that suppliers are bankrolling their customers for an average of 95 days, from the point of issuing an invoice before they threaten legal action with a solicitor’s letter before action (LBA) – the threat of taking the customer to court to enforce payment. This is a 7% increase compared with Q4 2014, when the average time from invoice to LBA was just 90 days.
The Department for Business, Innovation & Skills has started to take steps to assist businesses to arbitrate and mediate without recourse to the courts. A new small business conciliation service is to be launched to help settle disputes outside of court, along with a small business tsar who will put a special focus on this issue. Minister for small business, industry and enterprise Anna Soubry said recently they would tackle the power “imbalance” between small and large UK businesses.
It’s a start, but with a very small proportion of invoice claims ending up in disputes, I fear this will not get to the root of the problem and change the payment culture we now have in the UK.
At the heart of the issue is a fear of upsetting customers and damaging client relationships. Fundamentally (and quite reasonably) businesses don’t want to rock the boat by taking a more robust approach and enlisting legal expertise to recover money owed.
STRIKING A BALANCE
While it’s important to maintain good relationships with customers, a balance needs to be struck between acting in a way that could be interpreted as aggressive versus being too passive when it comes to enforcing your payment terms.
What’s really needed is a change of mindset by business, not government.
First of all, stop thinking of the credit control function as a drain on resource – think of it as a part of the business that can make a financial contribution – almost a profit centre if you like, making best use of regulations introduced in 2013. These allow firms to claim interest and compensation plus reasonable costs of collecting the debt where these exceed the compensation. I have seen substantial companies all but pay for their credit control salaries from late payment compensation on invoices.
Not only that, if a past or current customer has consistently paid you late, you can recover compensation and interest retrospectively on every invoice paid late going back six years.
Although few businesses are aware of this six-year rule, a small but growing number of firms are now utilising the Act to take on late payers, past and present, recovering very significant sums to compensate them for the administrative and legal costs they have incurred chasing overdue invoices. They are turning their customers’ poor payment performance into a business asset.
Compensation levels range from £40 for invoices up to £999.99, to £70 per invoice between £1,000 and £9,999.99, and £100 for invoices over £10,000. This is intended to cover the cost of your collections team.
I accept this is not going to win you any friends, and may even pose a threat to the client relationship – so start with ex customers first. If the market you operate in is quite niche you may find word will spread that your business has taken a stand and as a consequence your invoices reach the top of the pile for payment sooner than they may have done previously.
To take advantage of this legislation, all references to interest or other compensation need to be removed from your terms and conditions to allow the new legislative terms to bite. Provide the new terms to customers and confirm when they will come into effect. If you have a contractual clause allowing you to recover indemnity costs, you will also have a better chance of recovering costs if, exceptionally, you find yourself going legal.
Make it standard practice within the credit team to set out very clearly the sum that your customer will need to pay, in addition to the debt, in any letters chasing payment and on phone calls. It doesn’t need to be aggressive; you are simply stating that in order to protect the financial viability of your business you will need to impose the costs stated unless payment is made by the date specified.
As soon as a payment is overdue you can claim the compensation, and interest in due course, but you may wish to waive this if payment is made immediately. Make sure that customers recognise this legal liability.
You can also claim the reasonable costs of recovering the debt as and when they are incurred. You don’t issue an invoice for the interest, compensation or costs. You just write and tell your customer the amount due. It’s as simple as that.
Firms with a good record of paying their customers within terms, but who have suffered at the hands of their customers who pay late, have the most to gain. Those that have paid late themselves could find they are on the receiving end of compensation claims and should be declaring this as a contingent liability.
The tide is slowly turning and FDs need to be prepared for claims against their businesses as well as consider the opportunities to make claims themselves. As awareness continues to grow, the implications for businesses from both an asset and liability perspective are huge, and could change the culture of payment in the UK for good.
FDs open to both the opportunities and the challenges provided by legislation will be best prepared as they see an increasing and inevitable trend for late payment itself to be marginalised.
What do you think of when you think of the court process? A severe looking man in a wig bashing a gavel and shouting? A room full of clerks scribbling away with quill pens like in a Dickens novel?
The reality is that the modern court process for debt recovery is very different – for the first stages of the process there’s no courtroom and not even a Judge. Instead there’s just a computer system in an office block in the Midlands.
So what happens when a claim is issued?
For the purpose of this article we are assuming that a Letter Before Action has already been sent to the debtor, they have not responded, and so specialist debt recovery solicitors have been engaged.
The first thing the solicitors will do is compile the essential information necessary to issue a Legal Claim. This includes basic contact details such as name and address for the Claimant (the person who wants their money) and the Debtor (the person who owes the money). The solicitor will also put together what is known as the Particulars of Claim (or POC for short). This is a brief summary of what is owed, why it is owed and details of any additional interest, compensation or costs that should be added on to the debt.
Once all this information has been compiled it is sent electronically to the County Court Bulk Centre (CCBC) using a system known as Secure Data Transfer. This is a completely automatic process available to selected debt recovery solicitors and other high-volume Court users. It is not available to individual claimants.
Once the information is received by CCBC it is automatically checked for basic errors such as missing address information, non-UK postcodes, etc. Provided the information passes this validation process the data is then entered onto CaseMan – the Court Service computer system. At this point the case is allocated a Claim Number which is the unique reference henceforth used to refer to this case.
Every day all the cases received up to midnight the previous day are loaded onto CaseManager and then Claim Forms (N1) are printed for each case and posted out to the debtor. It is important to stress that this entire process is completely automatic – at no point is a Judge (or anyone else for that matter!) looking at the case and deciding which party is right or not.
If the debtor does not respond to the Claim Form within 14 days then an electronic request for Judgment can be made against the debtor (known as Default Judgment). Again it’s important to stress this is completely automatic – if the debtor has not responded then the Judgment will be entered regardless of the merits of the case. No human being (and certainly no Judge) will have looked at the case.
Once Judgment has been entered, Enforcement action can be taken to recover the debt. It is only if the Claim is defended that there is the potential that you will have to go to Court for a trial. On average only 16% of Legal Claims are defended and far fewer (3%) actually reach a trial. If you do find yourself, having to go to trial you will in fact be surprised that the settings are far less formal than anticipated. Less Dickensian Court room and more modern office rooms within close proximity of the Judge who will listen to each side and make a decision and provide reasons for their decision accordingly
Looking to file a claim? Make a head start by downloading our free Letter Before Action guide which will kick start the debt recovery process.
Free Letter Before Action Template – Lovetts Solicitors
There has been an alarming increase in cashflow difficulties faced by UK businesses during the past year, exceeding levels last seen during the recession. In 2015, 56% of County Court Claims to recover debt, resulted in a County Court Judgment (CCJ) because the debtor was unable to pay. This is the highest level seen in over 6 years. The findings underline warnings from George Osborne that 2016 has opened with a “dangerous cocktail of new threats” and support recent reports of a downturn in business confidence.
We have seen a similar pattern in our own debt recovery activity. The number of cases where the Claim has converted to a County Court Judgment was 44% in 2015, up from 38% in 2014. There have been various warnings about the state of the UK economy; with some saying it may be the toughest year for the global economy since the financial crisis. Our own figures show the percentage of Claims to CCJ conversion increased by 6%, from 2014 to 2015 – this is quite a year on year jump.
It is a concern that the conversion reported by the Civil Justice is even higher than during the recession, a strong indication that UK businesses are under increasing financial pressure – both those acting to recover debts and those issued with CCJs. We would therefore urge businesses to be vigilant and act quickly if payment from customers is late, or customers who usually pay promptly are starting to drag their feet. It could be a sign that they are facing financial difficulties and by acting promptly and getting ahead of other potential creditors.
Good terms & conditions will strengthen a credit controller’s position when a customer pays late and protect your business from bad debt. However, terms & conditions are useless unless they have been properly incorporated into a contract between you and the customer. For example, there is a misconception that if you refer to your terms on an invoice, your terms will apply to the contract. This is not correct because an invoice is considered a post contract document and only terms & conditions referred to before or at the point a contract is formed will be valid.
So how do you ensure your terms & conditions apply? Here are 4 ways you can incorporate your terms & conditions and protect your business:
1. A Signed Contract Or Credit Account Application Form
Out of the 4 ways, this is the most important. A signed credit account application form or contract enclosing your T&C and expressly stating that the terms will apply to all future dealings between the parties will ensure incorporation. An application form or contract will also help establish who you are actually contracting with. If the company stated on the application form or contract does not show up on your searches, ensure you make enquiries and get clarification from the customer in writing as this will protect you should you need to take legal action and enforce a judgment later on.
Some form of signed application form or contract is also vital if you trade with customers overseas, especially in the Middle East as they will often refuse to recognise a debt without a signed contract.
2. Create A Paper Trail Referring To Your T&C’s
When a quote or estimate is sent to a customer, ensure that it makes reference to your T&C. When you receive a purchase order, be vigilant to any reference to the customer attempting to incorporate their T&C and reject them. The easiest way is to do this is to send an order confirmation form once again reiterating your T&C will apply.
3. Create An Email Footer Referencing Your T&C’s
More and more business is done by email meaning contracts can be formed immediately upon acceptance without necessarily having a clean paper trail as mentioned at item 2.
To ensure incorporation of your T&C, make it Company practice for everyone to have an email footer making reference to your T&C and if possible create a link to your website T&C page. An example is set out below:
AN Example Limited
Co. Building ABC-123
London, E1 3XP
Unless otherwise expressly agreed in writing, the T&C of AN Example Ltd – see www.anexample.com/terms – shall apply to and govern any purchase arrangement between AN Example Ltd and the customer
4. Obtain A Guarantee
If you are giving credit to a company you are taking a calculated risk. To reduce the potential risk you could seek to obtain a signed document with a personal guarantee from a director or even a cross company guarantee from a parent company. The guarantee is a promise to accept responsibility for the customer’s debt in the event they fail to pay it. This will give you leverage and some additional protection especially if the customer becomes insolvent.
Previously: For the Cost of a Coffee, a Solicitor’s Letter Prompts Payment in 84% of Cases