The Challenge

Lovetts’ client, a steel company based in Cheshire instructed Lovetts on 8th August to send a Letter before Action to a debtor who owed €474,768.06. The letter gave the debtor 7 days to make payment directly to our client and warned if payment was not received, legal proceedings may be taken. 

The Solution

Lovetts sent the Letter Before Action to the company address. In addition, a copy of the letter was also sent to the Directors concerned via fax to ensure the letter was read and seen by all individuals to maximise the chance of payment. 

The Benefit

Four days after the Letter before Action was sent, Lovetts received a phone call from one of the Directors advising payment for the full amount had been sent directly to our client’s bank account. Our client then confirmed receipt of the full payment on 16th August meaning payment was received just over a week after the initial LBA was sent.

Yet almost 1 in 4 is experiencing more late payment problems, reveals Lovetts.

August 2014 – A survey of over 100 businesses by Lovetts Plc, the commercial debt recovery law firm has found that while late payment issues have worsened in the past year, few firms are fully exploiting their legal and regulatory rights – whether through lack of awareness or fear of upsetting customers. 82%* have not altered their terms and conditions (T&Cs) to take advantage of the new late payment regulations introduced last year. Just 16% are using Late Payment Demands in preference to a Letter Before Action (LBAs) and only 32% are claiming legal recovery costs, as well as compensation and late payment on overdue invoices, as a matter of course.

Over two thirds said they have not made their customers aware of the new late payment regulations and that they will enforce them if necessary. This is a serious concern given that almost 1 in 4 (22%) of the businesses surveyed said that late payment problems have worsened in the past year.

Charles Wilson, CEO of Lovetts says, “Our survey suggests businesses are missing a major opportunity to claim compensation and reasonable costs on overdue invoices – effectively making the debt recovery free. Even basic tools such as a Late Payment Demand which details invoices so that so that interest, compensation and costs of recovery may also be claimed in the letter, are not being utilised effectively with businesses opting for LBAs instead. LBAs and LPDs are the same cost to issue so money is not necessarily the barrier here.

“Of course, what business may fear is that legal costs could spiral given the huge increase in Court Fees earlier this year, but if they implement the new regulations, many businesses could actually find most of their legal costs are covered.

“Whilst there maybe reticence to impose new T&Cs on existing customers, our recent late payment analysis** shows that businesses have got busier, since Q1 2014, and now could be a good time to focus on updating T&Cs so that they are in place for new customers. With late payment on the up, there really is no time like the present.

“If businesses really study their debt collection process it will reveal the true cost of chasing late payers. They now have the option to add that cost to the claim. And it is never too late to claim, firms have up to six years to delay claiming interest and compensation retrospectively”, concludes Charles Wilson.

*Survey of 104 Lovetts’ customers in July 2014.

** In Q2 2014 compared to Q1 Lovetts found that the number of bad debts on businesses’ books had jumped by 27%.

Lovetts Plc, the commercial debt recovery law firm has seen a marked increase in businesses seeking its help to recover debts from the Middle East.

Middle Eastern debtors operate on the basis that if there is no signed contract then invoices will be rejected for payment. Many debtors in the Middle East are now using this as an opportunity to avoid payment to UK suppliers.However, unknown to many UK Companies, Middle Eastern debtors can prepare a summary paper outlining all events, for a bid committee to consider. The bid committee, which includes Government Ministers, approves payments when no contract is present by signing the summary paper.

The key factor in obtaining their approval is that there must be sufficient evidence to show that terms of business have been incorporated as if a contract was present.

While this process should ultimately result in payment, the process can be time consuming, adding months and sometimes years to the waiting time for payment to be made.

In a recent case handled by Lovetts, the UK firm had no signed agreement with a company in Egypt, and had been trying in vain for 3 years to recover the debt before approaching the pre-legal overseas team at Lovetts for help.

Lovetts established contact with senior personnel at the firm in Egypt and provided a paper trail to show the debt was due. A bid committee was requested for the case to be heard which subsequently approved the debt and payment was secured of over £40,000 on a no collection no fee basis.

Michael Higgins, Operations Director at Lovetts says: “The way Middle Eastern debtors operate has caught many UK firms unawares. It is imperative that businesses exporting goods and services to the Middle East, ensure they have a contract drawn up that is signed by both parties. Seek the help of your legal team or debt recovery experts with experience in overseas debt to ensure the contract is watertight. It’s vital that contract laws such as this do not become a barrier to overseas trade.”

The Number Of Debts Referred For Legal Collection Jumps By 27%.

Reports that business confidence is now at its highest level in 20 years have been borne out by the latest late payment analysis from Lovetts Plc, the commercial debt recovery law firm. Lovetts has found that based on the volume of invoices being issued and now being chased for payment, businesses have got busier, since Q1 2014, but are also battling late payment as the number of bad debts on their books has jumped by almost a third.

Compared to Q1 2014, the total number of debts Lovetts’ businesses had on their books increased by 27% on the previous quarter. Such a significant upturn in the number of debts is a strong indication of a corresponding upturn in orders/sales. While this supports reports of a boom in business prospects, Lovetts’ analysis shows that late payment is becoming increasingly widespread, despite Government attempts to tackle the issue.

Charles Wilson, CEO of Lovetts says: “The huge increase in the number of commercial debts on businesses’ books in Q2 2014 vs Q1 is a sign of a busy sales ledger which is good news but also something that needs to be managed very carefully. It’s all well and good bringing more business but not if it means more time chasing up customers to get invoices paid.

“It is crucial businesses take control of these debts as the economy recovers with robust credit control policies and late payment tools such as a Letter Before Action or Late Payment Demand to show you mean business when it comes to chasing debt. Our analysis shows that businesses are acting quicker than they were in Q1 to commence legal action to recover a debt but they are not acting quite so fast when it comes to the initial chase with a Letter Before Action. This works in 80% of cases, reducing the need to make a claim through the courts.”

Our Client, a corporate pension plan provider in the UK had a debt in France for just over £2,000.00 in which they instructed Lovetts overseas prelegal department to recover the debt on a no collection, no fee basis.

The Challenge

The debt was for unpaid annual management and land admin fees due by an individual overseas. Our client had written off the debt due to it being 3 years old but took the decision to instruct Debra King, Overseas Paralegal on a low risk, no collection no fee basis in an attempt to try and recover the monies.

The Solution

As with all overseas debts, Debra carried out extensive research on the individual to obtain as much information as possible to assist in the recovery of the overdue invoice. The information obtained allowed Debra to identify what could be used as leverage against the debtor.

The Benefit

Debra received a call from the debtor subsequent to her demand for payment. The client is now receiving regular payments to discharge the debt which had been written off. Our client was extremely happy with the outcome and couldn’t believe how quick the response was, especially as the debt wasn’t in the UK!

Lovetts offers cost-effectiveness reporting and 12 point guide for Credit Managers.

Lovetts Plc, the commercial debt recovery law firm is making it easier for businesses to understand and therefore control their debt recovery costs with an online reporting facility from its client portal, CaseManager.

Businesses can easily run reports of recovery successes against cost incurred, helping to drive future credit control strategies.

The online reporting facility on CaseManager complements Lovetts’ online Claims Calculator which helps companies take full advantage of Late Payment legislation by indicating the reasonable costs of recovering a debt for which they can claim in addition to the initial sum outstanding. For existing Clients using CaseManager, reasonable costs can be added to Claims as an automatic part of the process – effectively making claims cost nothing.

The solutions form part of a 12 point guide Lovetts has produced to help firms control their costs in credit control as businesses face a huge jump in court fees.

Charles Wilson, CEO of Lovetts said: “It is now just over a year since the new late payment regulations came into force but with an average rise in Court Fees of 117% for debts of between £3,000 and £15,000, businesses need to get really smart about their credit control processes to stop debt recovery costs escalating. For a start, many are not aware of the difference between a Late Payment Demand and a Letter Before Action – one has considerably more power than the other. Added to this is the complexity of calculating how much businesses can claim under the new late payment regulations.

“Along with the debt itself, the legislation entitles businesses to pursue all the reasonable costs of recovering a debt, including any administration or legal fees, to the extent that the fixed amounts of compensation do not cover their costs.

“Tools such as the online Claims Calculator from Lovetts can make the job a lot easier, by enabling businesses to assess the likely costs of pursuing a debt before they make the decision to go down that road. Debt management systems such as Lovetts’ CaseManager can also simplify the process of calculating the costs that can be claimed and automatically adding them to the debt. And the new reporting facility delivers greater insight into recovery successes, helping businesses understand the return on their investment in pursuing a debt. This knowledge is vital in driving future recovery strategies, ensuring businesses can keep a cap on credit control costs.”

Lovetts’ 12 Point Guide to Controlling Debt Recovery Costs

1. At the outset make sure the customer understands that legitimate costs, compensation and interest will be claimed if late payment occurs – get it in your Terms of Business.
2. Invoice promptly- in the same month call or email to check the invoice has arrived with the right person to approve.
3. As soon as it becomes overdue, call the customer to remind them that Late Payment compensation and interest are due on each invoice – plus indemnity costs under contract now possible thought Late Payment legislation. Give them the cost they could incur if they don’t pay up. Use a tool such as Lovetts’ Claim Calculator to provide the cost. Make no bones about the fact these will be claimed if it goes to legal, then dangle a carrot and offer to waive compensation if immediate payment is made.
4. If any issues or disputes arise with your debtors, obtain fixed fee advice from a specialist solicitor before sending a Letter Before Action or Late Payment Demand. The advice will give you a better understanding of your legal position and the strength of your case. It will also set out tactics to resolve the case and the likely costs of taking legal action before you get sucked in unnecessarily.
5. Make sure you tell your legal representatives to include your contractual costs, compensation and interest if you are entitled to them all.
6. Use a Late Payment demand (LPD), not just a Letter before Action (LBA). It costs the same at Lovetts.
7. If payment isn’t made, warn of the additional recovery and/or legal costs that will be due in addition to Late Payment compensation – again Lovetts’ free online Claims Calculator will do this for you.
8. Go legal when you say you will. If you don’t act on your threat your invoices will always remain at the bottom of the pile.
9. If you are worried about their financial stability, and need to move fast, consider insolvency proceedings. It makes maximum impact straightaway. It carries the risk of public advertisement. A Winding Up Petition against a company can be used for debts over £750.00.
10. Ensure you use systems such as CaseManager, Lovetts’ innovative online client portal, to allow reasonable costs to be added to Claims as an automatic part of the process – effectively making Claims cost free when recovery is made.
11. After the Claim is issued, ask the debtor if they want to pay to avoid Judgment being entered which will hit their credit rating. Over 50% will. Make sure you get all the costs in 3. above.
12. Act decisively and it will change your business culture and your customer relationships while reducing late payment for your business.

Businesses face massive increase in cost of recovering debt, in Government ‘own goal’

This week, the Government has confirmed the implementation of its planned increase in Court Fees following a consultation process at the start of the year. With just 4 week’s notice, many businesses will face a 97% hike in the cost of pursuing over half of their claims for commercial debt. Lovetts, the commercial debt recovery solicitors is warning that increasing fees for debts between £1500 and £15,000 will damage the cashflow of small and medium sized firms in the midst of recovery, citing the move as a spectacular ‘own goal’ for the Government. As part of a set of measures to increase revenue from the Courts from £490m to £625m, Court Fees for small commercial claims between £3,000 and £10,000 are rising by over 100%. For example, a claim for £3,500 will attract an increase from £85 to £180. A claim for £6,000 will attract an increase from £190 to £400.

Charles Wilson, CEO of Lovetts says: “From the outset, the Government has failed to distinguish between the claimants that specialise in consumer collections, or debt purchase, and the heart of UK business which is mid-range bulk debt dealt which will see Court Fees almost double overnight. Essentially, the heartland of commerce will, for at least 50% of its claims from £1500 to £15,000, be paying an increase of 97%.”

Of course, we are actively advising our clients be vigilant in recovering all Late Payment compensation, interest and costs possible, but it is the risk of non-payment that may deter creditors from seeking redress through legal channels. It is the most vulnerable businesses that will not wish to take this risk.

“These proposals therefore make a mockery of the Government’s initiatives to combat late payment – it’s a classic own goal. The very real danger is that businesses will be tempted to just give up and write-off the debt. Poor payers gamble on the reluctance by SMEs in particular to risk court fees on modest claims of up to £10,000. This combined with the fact that most firms set policies based on risk and cost-effectiveness points to a situation where late payers will know they have nothing to fear and the whole system of commercial redress will fall into serious disuse and disrepute.”

The Challenge

Our client, a lighting specialist had paid a company monies to hold stock on its behalf. The defendant, a Director of the Company, had signed a declaration confirming that the company was holding the stock paid for. The company then went into liquidation and some of the stock appeared to be missing. The client could not retrieve the £16,000 worth of stock paid for nor did it have any prospect of recovering this sum from the company that was now insolvent.

The Solution

Lovetts were instructed to take over the case and investigated the full background to the situation with the insolvency practitioner dealing with the liquidation of the company and the suppliers the defendant was supposed to have ordered the goods from.

 It transpired that some of the stock had never been in the possession of the Company because it had not ordered the stock or paid for the stock from other suppliers. The defendant had therefore made a fraudulent statement. Lovetts advice was to hold the defendant personally liable for the debt with a claim for fraudulent trading despite being a director of the limited company.

The Benefit

After the defendant was presented with evidence by Lovetts, she agreed to pay our client £16,000 by way of instalments.

Interested in our Commercial Litigation services? Contact us today on 01483 457500

Helping businesses prepare for a major change in bailiff and enforcement regulations coming this April, Lovetts Plc, the debt recovery law firm has created a 10 point guide on the new regime.

The guide is accessible from the Knowledge Base section of the Lovetts website.

On 6th April 2014, the long-awaited reforms to the ‘bailiff and enforcement’ regulations and costs become Law.The new law deals with when a debtor’s premises can be entered and what goods can be taken or not taken. It also covers how a repayment scheme can be made; and how goods can be sold if the debt remains unpaid.

Charles Wilson, CEO of Lovetts, comments “Currently, the law and cost structure relating to the seizure and sale of goods is complex, unclear and confusing. This has resulted in a small but well publicised number of cases where debtors became victims of bailiffs using poor practice to seize goods.

“The new regulations are welcome in that they set out the procedure that enforcement agents acting on behalf of trade credit managers must follow, when taking control of customers’ goods and also makes provisions for ‘vulnerable’ debtors, bringing some clarity to an area that has been overly complicated.  It should certainly smooth the process of levying execution of goods for Trade Credit Managers.

Lovetts’ Top 10 Highlights of the New Taking Control of Goods Regulations 2013 [SI 2013 No. 1894]

1. The existing law is very historic, and contains many anomalies on practice and fee-charging. It clearly needed modernisation.
2. The new law deals with when a debtor’s premises can be entered; what goods can be taken, or not taken; how a repayment scheme can be made; and how goods can be sold if the debt remains unpaid.
3. It makes special provisions for ‘vulnerable’ debtors to give them more time to get help.
4. Certain goods belonging to a debtor are exempt. This is not new, just updated. They now include basic things like a cooker, fridge, washing machine, medical aids, etc, but also office equipment for the debtor’s personal business such as computers, tools, phones – even vehicles – as long as they don’t exceed a value of £1,350.  Above that sum they may be subject to ‘taking control’.
5. The enforcement agent must give 7 clear days’ notice of his intention to take control of the debtor’s goods. (The Court can order a shorter period on application by the creditor if it thinks the goods might be removed or disposed of before the enforcer can take control).
6. The notice can be given by almost any means, including electronic communication (email, text, fax).
7. Children and vulnerable people get special protection.
8. Taking control must occur within 12 months of the Notice to take control.
9. A controlled goods agreement may be made with the debtor. This means the costs are limited (unless he breaches the agreement).
10. There are many detailed regulations relating to taking control of goods on a highway (vehicles, mainly), rights of entry to premises, removal for sale, etc.
    
    

As part of the reforms, the fees for when a High Court Enforcement officer attends the debtor’s premises, and secures a ‘controlled goods agreement’ with the debtor, have been clarified.  

Charles Wilson concludes: “We hope our top 10 highlights will help trade credit professionals understand what the changes mean for them and their clients. With 3 months to go, there is time to prepare and ensure businesses, where necessary, can take advantage of these new rules to recover unpaid debts. ”If a second visit is required, then the fees increase with a heftier fixed fee, but no increase in the percentage. The Enforcement Officer may also recover certain disbursements properly incurred and considerably more fees if the goods have to be sold.  It now incentivises the debtor to pay as early as possible.

Lovetts PLC, the commercial debt recovery law firm has issued a no holds barred response to the Government’s Consultation on Court Fees. Lovetts has branded the proposals, unrealistic and unwise, cautioning the Government on the impact that a 94% increase in Court Fees could have on cash flow for the UK’s recovering economy. Charles Wilson, CEO of Lovetts said: “The Government is seeking to increase revenue from The Courts from £490m to £625m by an overall increase of 29%. We approve of the general principle of full cost recovery, but the heartland of commerce will, for at least 50% of its claims between £1500 to £15,000, be paying an increase of 94%. This is not fair, nor wise.”

“The key issue is that the MoJ Analytical Services Insight Paper failed to distinguish between the claimants that specialise in consumer collections, or debt purchase, and the heart of UK business which is mid-range debt issued through bulk users. Bulk users are facing increases in their most voluminous claims of over 100%.

A claim for £3,500 will attract an increase from £85 to £180. A claim for £6,000 will attract an increase from £190 to £400. Is that wise when businesses are urgently trying to reduce their late payment?” “What they have not considered is that the price of legal remedies is significant in the minds of the typical credit manager who set policies based on risk and cost-effectiveness. A change of policy may therefore hugely affect the numbers of claims issued and access to justice for businesses for their small value claims.

The assumption has also been made that the Court Fee in claims is an insignificant proportion of overall costs.  This belief is false – Court Fees are a major cost because using debt recovery lawyers is so cost-effective in the UK. On a claim of £6,000, the Government will get paid £400 by the debtor, but the creditor’s solicitor will only recover £100. Is that fair?” “We just need to look at the reduction in claims being issued annually at the County Court Bulk Centre. 

Claims for all cases are down from 805,000 to 536,000 over the last 6 years. At Lovetts, we know how credit professionals in industry react when faced with the risk of not recovering costs and court fees. Have the Ministry of Justice been listening in the right quarters, I wonder?  Whilst these figures include high volume consumer debt, our own experience confirms a reluctance by Business to risk court fees on modest claims of up to £10,000.”“The proposals fly in the face of Government initiatives to address the issues of late payment.

A massive increase in costs for B2B collections will adversely affect these initiatives. Non availability (on cost grounds) of legal services will have a disproportionately large effect on the whole collections cycle. Businesses will be tempted to just ‘give up’ and ‘write off’ debt. This is not good for commerce of the UK economy.” “Let’s hope that the Ministry of Justice think long and hard about the representations they have just received, and recognise that budgets and the commercial logic for engaging in such litigation are totally different for business users of the Court Service – or the whole system of commercial redress will fall into serious disuse and disrepute.”