In a further sign of increased business confidence, during Quarter 4 2013, businesses clamped down on the time they allowed customers to delay payment before threatening legal action.

The time from invoice to instructing a Letter Before Action (LBA) to be issued decreased by 12 days between Q3 2013 and Q4 2013, according to the latest debt recovery statistics from commercial debt recovery law firm, Lovetts Plc. Furthermore, the average debt being chased rose by 31% on the previous quarter.

Whether buoyed by more positive reports of economic recovery or simply a desire to end the year with all large debts paid, Lovetts figures show that businesses appeared to tighten the reins on late payers in the final quarter of 2013, focusing efforts on the biggest outstanding bills.

Charles Wilson, CEO of Lovetts said: “On the whole, these figures represent a marked and welcome shift in attitude and action by UK businesses during the final quarter of 2013. It would seem that increasingly positive reports of a recovery have instilled greater confidence amongst businesses to pursue outstanding commercial debts.

“It’s a change in the pattern we saw in the height of the recession when nervousness of upsetting customers prevented businesses taking firm action to deal with debt. Late payers were given the upper hand and got away with not paying their invoices for months on end. This is no way to get businesses back on a sound financial footing. Firms are now acting faster and demonstrating to customers that they won’t tolerate late payment. It is important these firms don’t simply ‘cry wolf’ and fail to proceed with legal action where it is needed. With new late payment legislation offering businesses the opportunity to recover reasonable costs there really is very little justification for letting late payers lie.”

On 6th April 2014, the long-awaited reforms to the ‘bailiff and enforcement’ regulations and costs become Law. This article is written as an outline briefing note in January 2014 and may be amended before the Regulations come into force.

This political football started a long time ago with the fact that the Government couldn’t implement any satisfactory rules to sit behind Part 3 of the Tribunals, Courts and Enforcement Act 2007, and Schedule 12 in particular.The Enforcement industry pointed out certain things that wouldn’t work, and the consumer lobby was gaining in political muscle and getting very protective of the victims of some isolated poor bailiff practice.

If you want to read about the background to this legislation, follow this link for a summary from the MOJ: http://www.legislation.gov.uk/uksi/2013/1894/pdfs/uksiem_20131894_en.pdf

After a lot of brokering by the Ministry of Justice (MOJ), and sterling work by members of the Enforcement Law Reform Group chaired by Lord Lucas, consensus about taking control of goods (not, however, commercial rent arrears) was achieved in the summer of 2013. Since then, the MOJ has published two of three statutory instruments.

For the trade credit manager wishing to levy execution on goods, here are the top 10 highlights:

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.

How much can the creditor’s agent recover from the debtor for his fees?

Taking Control of Goods (Fees) Regulations 2013 [SI 2014 No. 1]

Thus, if the High Court Enforcement officer attends the debtor’s premises, and obtains a ‘controlled goods agreement’ with the debtor, then – providing there is no subsequent breach by the debtor – the fees are limited to:

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.

The Schedule to this Statutory Instrument shows different figures to be due if control is taken other than by a High Court writ e.g. the county court bailiff.

Average Level Of Debt Reaches £220,000 But Is ‘Tip Of The Iceberg’

The amount of debt a typical UK business is facing through customers paying late or not at all is growing at an alarming rate. In the fourth Quarter of 2014, Lovetts,the commercial debt recovery law firm saw a 30% increase in the level of debt each of its customers is pursuing for payment through Letters Before Action (LBAs), growing from £42,000 in Q4 2013 to £55,000 in Q4 2014. Annualised therefore, the amount of debt UK companies are facing on average has gone from £168,000 to £220,000 in the past year*.

Letters Before Action or LBAs are used as a first stage warning to prompt payment when the business has failed to elicit a response to its own requests for payment of overdue invoices. Typically only 5-10% of debts are referred to legal practitioners to pursue payment so the value of debt seen by hundreds of Lovetts’ clients represents a fraction of the total amount of unpaid invoices and debts faced by UK businesses at the start of 2015. As the Government continues to propose various measures to stamp out late payment, the latest figures from Lovetts provides an indication of the growing scale of the problem as suppliers bank-roll their customers through the supply chain.

Charles Wilson, CEO of Lovetts says: “It’s a national scandal that late payment has exacerbated to such a level. What we see is only the tip of the iceberg. Every business pays late, forcing their suppliers to pay late – it’s a vicious cycle which can only be cracked by firms taking a harder line with their customers past and present and using their right to claim compensation currently utilised by only a minority of businesses.”

*based on sample of over 200 Lovetts customers with greater than £10m turnover across the UK, who in this Quarter instructed Lovetts to pursue payment of overdue invoices. 

Businesses troubled by late payment and bad debt but worried about the cost of taking legal action can now obtain an immediate indication of the money they could recover on top of the debt with the launch of an online Claim Calculator from Lovetts PLC – www.lovetts.co.uk – the Guildford based law firm specialising in commercial debt recovery.

The Lovetts Claim Calculator has been created to help firms take maximum advantage of new Late Payment legislation introduced in 2013. 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.

Found on the information page of the Lovetts website, firms simply enter the details of the debt and the Lovetts Claims Calculator will instantly return an itemised estimate of the fixed costs the business can claim from a debtor plus any interest and compensation.

Bringing clarity to the complexities of late payment legislation, the Claim Calculator has been designed by Lovetts to empower businesses with the confidence to pursue bad debts in the knowledge that any expense incurred pursuing the claim could be balanced by the recoverable costs to which they would be entitled.

Existing Lovetts clients can access the Claim Calculator via CaseManager, Lovetts’ online client portal. These costs are automatically added to any claims being processed providing full visibility for the client.

Charles Wilson, CEO of Lovetts, comments, “The Lovetts Claim Calculator is simple to use and gives an immediate indication of the different types and levels of costs that can be recharged against the debtor when making a claim. We believe that if businesses know the costs that can be recovered as a minimum, they will have greater confidence in pursuing a claim to recover outstanding debt. However, before proceeding, we recommend getting free advice from one of our legal team to ensure they can actually claim.

“This enhancement to our website is part of Lovetts’ commitment to helping businesses reduce their legal costs and get the best results when chasing debts.”

Lovetts enhances CaseManager to make cost recoveries part of Claims www.lovetts.co.uk

Lovetts PLC, the law firm specialising in commercial debt recovery, is making it easier for businesses to take advantage of new regulations introduced this year to recover reasonable costs in pursuit of a claim. The firm has enhanced CaseManager, its 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.

In March this year, the Late Payment of Commercial Debts Regulations 2013 was passed which allows creditors to include all reasonable costs of recovering a debt, including any administration or legal fees, not covered by fixed amounts of compensation. As creditors need to be able to quantify those costs Lovetts has calculated the appropriate amounts which in most cases will cover all the legal fees and costs of issuing a claim. Streamlining the whole recovery process, businesses using CaseManager will find these costs added as part of the claim being issued.

Charles Wilson, CEO of Lovetts said: “We know that our clients are always looking for ways to reduce their legal costs. That’s why we have made this important enhancement to CaseManager, our unique online case management system. Provided the debtor pays in full, clients should effectively get free debt recovery. Normally these costs would have been irrecoverable.

“The only limitation is that the costs and compensation together must be ‘reasonable’ and the contract terms must not provide another “substantial remedy” for the creditor’s compensation, costs or interest. Therefore as an important back up to the service, we are offering clients free preliminary advice on what their Terms of Business actually allow them to claim. A quick chat with our one of our legal team will soon determine whether the new regulations can be applied. 

“This latest development is a further demonstration of Lovetts’ commitment to exploit technology to help deliver efficiencies and saves costs for businesses pursuing commercial debts.”

Debra King appointed Paralegal focused on boosting collection rate www.lovetts.co.uk

Debt recovery law firm, Lovetts, has expanded its Overseas Pre Legal Department with the appointment of Debra King as Paralegal. Bringing 15 years commercial debt recovery experience, Debra will focus on Lovetts’ services in overseas collections where her skills will be applied to enhance collection rates for clients. Beginning her career in Germany, Debra relocated to England in 1987 to study criminology, psychology, debt management and bankruptcy and insolvency. Following roles in debt recovery and legal assistance, Debra joined Abshot Finance Company Limited and spent 10 years as a Debt Recovery Manager prior to joining Lovetts. This experience will be invaluable in helping her to build Lovetts’ overseas pre legal services.

Debra comments on her new position, “Lovetts is a highly professional firm of debt recovery solicitors, offering me a fantastic opportunity to apply my expertise in this area. I am looking forward to working closely with the team to ensure we get the best result for our clients. At a time when businesses are focusing on bad debt, Lovetts is in a strong position to help them take swift, decisive action to chase late payments and get results.”

Charles Wilson, Chairman of Lovetts says, “Debra’s appointment forms part of our ongoing commitment to investing in talent to develop the strength of our overseas pre legal department. The current economic climate means our services are in high demand, offering businesses the legal advice and support they need to gain control of overdue debts. Debra’s expertise in this field makes her a key addition to the team, helping to enhance Lovetts’ position in the marketplace and build the service we provide to our clients.”

Latest analysis from Lovetts shows invoice payment still being neglected despite business improvement www.lovetts.co.uk

Following recent news from the FPB that business costs are rising 3.5% ahead of inflation,* data analysis from Lovetts PLC, the law firm specialising in commercial debt recovery, shows that businesses are also struggling to get back money owed to them by customers. The FPB research showed that late payments have had a detrimental effect on 81% of businesses, clearly demonstrating the size of this issue.

The latest analysis of Lovetts client transaction data shows that whilst trade appears to be improving for many, with evidence pointing to higher volumes of transactions, the number of overdue invoice payments being chased has also increased. The number of Letters Before Action Lovetts issued on behalf of its clients in Q3 2013 increased by a hugely significant 30.9% compared to the same period in 2012.

Charles Wilson, Chairman of Lovetts, comments: “It is encouraging to see that commerce is improving for many of our clients, but this improvement is being hindered by the failure to secure payment in a timely way, evidenced by the dramatic increase in number of debts we are chasing for our clients. Companies of all sizes are affected by late payment and this can force them into delaying making payments themselves. It’s a vicious circle of late payment which needs to be broken, and the best time to do this is at the outset of a new relationship or at the point of contract renewal when terms and conditions are reviewed.

“We always advise clients to stipulate clearly in their terms of business what will happen if and when an invoice becomes overdue, and to discuss this with their customers to ensure it is understood. This avoids any awkwardness and potential damage to the working relationship as all parties are clear on where they stand from the beginning. With times still tough for businesses, especially in light of the FPB research showing the increasing costs companies are facing for fuel, transport and marketing among other things, it is important that businesses do all they can to keep cash-flow moving efficiently.

“Implementing effective payment terms and enforcing these across the board is a relatively easy place to start and will also highlight any customers which are causing particular issues – remember if they’re not paying you for your goods or services, they’re not a customer!”

Lovetts’ Tips to Tackle Late Payment

1. Make sure your customers know you want to get paid on time. Too many companies give wrong signals, by failing to check that their invoices have arrived safely and are on their customers’ ledgers. Keep the credit function properly resourced.
2. Tell customers early on, as part of good relationships, that legal action will be taken against non-payers. It doesn’t need to get personal at this stage, just clear.
3. Add up the costs of going legal early on i.e. interest, late payment compensation, indemnity costs under contract (make sure your T&Cs allow for this). Then tell the customer what that figure is. Explain your reluctance to escalate costs unnecessarily.

The Challenge

Lovetts Solicitors client is a renowned events organising company. It had entered into a contract to plan a wedding on behalf of a well known premier league footballer. It had negotiated contracts with a number of suppliers on behalf of the client. Just 8 days before the wedding day, the events organising company received notice that the wedding was to be cancelled. Under the contract made with the footballer by the events company, all outstanding balances would have to be paid in full unless cancellation was at least 28 days before the wedding. The footballer chose not to make payment as a result of the wedding not going ahead. 

The Solution

Lovetts first step is always to give advice on the likelihood of recovering the monies due by reviewing all evidence and paperwork. The client was concerned about the defendant’s liability due to certain agreements only being signed by the fiancé and not the premier league footballer. Lovetts advised the client that the fiancé would have presumed authority under common law to bind both her and the premier league footballer to the contract. A Defence* was filed alleging that the client should have breached its contracts with its suppliers by cancelling its contracts with them. Lovetts advised that although in certain circumstances there is a requirement to mitigate losses, in this case the client had entered into terms which meant that cancellation would not mitigate any loss, and that the events organising company was under no obligation to breach contracts with its suppliers. This would have been severely detrimental to its own business and its relationships with its suppliers. What benefits will I get from receiving solicitor’s advice? Lovetts advised the client to make a Summary Judgment* application – a quicker and more cost effective solution than going to trial. The footballer opposed the application. 

The Outcome

Due to our client having good paperwork supporting its case, the summary judgment application was successful. Lovetts’ client was awarded Judgment for a sum over £60,000. The premier league footballer made payment. Our client was very satisfied with this debt recovery end result.  

FAQs

Don’t Get Bogged Down in Payment Disputes

When it comes to payment disputes it’s easy to take things personally. After all, you’ve kept your side of the bargain and the non-payment can feel like a slap in the face. At this moment it’s important to take a step back and look for the positives. Read more.

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 

The Challenge

Lovetts Solicitors client is a major property services company.

It had a debt owed by one of the largest heating manufacturers and suppliers of boilers. The client was contracted to fit boilers for a third party at a fixed price per boiler throughout the term of the contract. The client’s contract with the debtor likewise provided for supply at fixed prices. The debtor did not honor that agreement, raising the price each year, but the client had to honor its agreement with the third party to avoid a breach of contract and reluctantly paid for the boilers at the increased prices.

The Solution

We were asked to advise on whether it was possible to reclaim the sums overpaid which the client estimated to be around £66,000. It had attempted to recover these sums itself for over 2 years without any success. Following the advice given, it was agreed that Lovetts should negotiate with the debtor.

The Benefit

Lovetts wrote to the debtor setting out the basis of the claim and the law that applied. The debtor replied to Lovetts accepting liability. Lovetts subsequently obtained information from the debtor which helped the client reconcile its account, establishing that the actual amount due was in fact just over £80,000.00. In addition to the debt, Lovetts secured interest of around £4,000 resulting in the client receiving payment of just over £85,000 in settlement.

The Challenge

Lovetts’ client had supplied sleeves for covering water bottles to a drinks company. The drinks company then went into administration without paying their supplier’s debt. Administrators were appointed. After the drinks company went into administration, Lovetts’ client went to inspect its stock – under the control of the Administrator – in exercise of a retention of title (RoT) clause in its terms and conditions. Our client asserted its right to the goods under the RoT clause, as it had good records to support the claim. The administrators disputed the fact that the retention of title clause applied. Furthermore, it appeared that not all of the stock identified by the client at the inspection remained in the administrators possession – the administrator had clearly used some of our client’s stock.

The Solution

First of all, Lovetts argued successfully that the RoT clause did apply. Secondly, Lovetts’ identified a potential claim for conversion. If proven, this would include damages for the wrongful interference with the client’s goods, as the administrators had not obtained an order from the court giving it permission to sell the clients good. In any event, the administrators would have had to remit payment to the client for any of the clients goods sold even if the Administrators were given permission to sell them. So both arguments succeeded.

The Benefit

Although the debt was disputed, the administrators eventually conceded and the client received payment of around £42,000 when it appeared initially they would receive nothing.