As a business you are faced with many challenges on a day-to-day basis. Chasing up debts is one such challenge that many Credit Controllers, CFOs and even CEOs have to face.  The true challenge lies in ensuring the debtor pays without any court action having to be taken. In this article we will discuss how to recover debts using the ‘Three Ps’ (Patience, Politeness, Persistence).

Debt Recovery using the 3 Ps- Patience, Politeness, Persistence

The philosophy of the ‘Three P’s’ is a simple one, which can be applied to a lot of business practices such as sales, marketing, and indeed wider life. Directors often wonder what the best approach would be when they encounter a client/customer that has not yet paid their invoices, and the first key to success in this area is… 

Patience
Patience truly is a virtue. Unfortunately, it’s not something that a lot of businesses always feel they can afford, especially when attempting to ensure a steady cash-flow. However, patience in this area can show your customer/client that you are willing to retain your relationship, since you value them. It shows you understand that certain problems occur that might prevent them paying on time and you are willing to offer alternative ways to pay. This in turn will boost customer loyalty and lead to stronger relationships. Examples of showing patience are offering payment plans or a simple letter reminding them that their payment is overdue, or even approaching being overdue, and will need to be addressed to preserve your relationship.

Politeness
Oftentimes it is natural to react in anger when a customer simply isn’t paying on time. We understand this, as we know that your business has to go forward and not have late payers hold you back. But there are polite ways of handling such situations. Showing your customer courtesy could prove to be a valuable asset when prompting a customer to pay their debt. This could be as simple as writing a letter or scheduling a meeting to discuss the issue. We often find it’s easier to engage in a face to face conversation or even phone call, than contacting through email, as words can be easily misconstrued when read.

Persistence
Persistence is key as we all know in business. Without persistence, we wouldn’t be where we are today. It’s important to be persistent when looking to have late invoices paid. And as a starting point, here are a few ways of being persistent without being pushy:

Send invoices by post and electronically– by sending invoices through multiple channels, it makes it less likely a customer can say that they haven’t received it.

Send a Letter Before Action/Letter of Claim– you have to do this anyway before taking legal action, and our research shows that this course of action is effective in 86% of cases, meaning that they never need to proceed further.

Apply interest in late payment correspondence– one option at a business’ disposal is to introduce late payment interest terms, demonstrating there is a possibility that additional fees could be incurred if payments are received late. Compensation is also a possibility if you are entitled to it either through an existing contract or the Late Payment Act. This shows the customer that you take matters of late payment very seriously..

Outsource debt recovery to specialists– expertise in this area will ensure efficient debt recovery and save a lot of time in the process.

And there you have it! The ‘Three Ps’ you can adopt today to change the way you approach recovering debts from customers.

Need more tips on effective debt recovery? Download our free 10 effective debt collection tips guide to ensure efficient debt recovery.

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4 Things To Consider When Recovering Debt

All businesses rely on cash flow to survive. At Lovetts Solicitors we specialise in helping businesses recover debts. Here are our five Top Tips on enhancing recovery.

By Michael Higgins, Managing Director of Lovetts Solicitors – this article first appeared in the Evening Standard in September 2018. You can read the newspaper version online here.

1. Get a signed contract or credit account application form
Good terms and conditions will strengthen your position when a customer pays late. There’s a misconception that if you refer to your terms on an invoice, these terms will apply to the contract. This isn’t correct and a signed credit account application form or contract is best practice.

2. Refer to your terms in an email footer
More and more business is done by email, meaning contracts can be formed during email correspondence. To ensure incorporation of your terms, make it company practice for everyone to have an email footer referring to your T&Cs.

3. Create a credit control and debt-collection policy
Statistically, the majority of your customers will pay late. Ensure you have a credit control and debt-collection policy. It’s good practice to call a customer before your invoice becomes due to check the invoice has been received and is on a payment run. Not having an invoice is the number one excuse for late payment.

4. Have a specialist debt-recovery solicitor as a supplier
Unfortunately, some customers will have a policy of not paying until they receive a solicitor’s letter in order to protect their own cash flow. At Lovetts, we offer a Letter Before Action (LBA) for as little as £1.50 plus VAT. This secures payment within 86% of our cases without the need for further legal action. The perception among 58% of businesses is that chasing late-paying customers through solicitors could damage the relationship. This fear is unfounded as our clients often continue to trade with their customers after our LBA has been sent and payment secured.

5. Retain control of your debt collection even if you see a solicitor
Once you pass your debts to a solicitor, it shouldn’t mean you lose control. Lovetts’ online CaseManager portal allows clients to give instructions, obtain reports, and view all of their cases 24/7. 

Above all, taking a measured but proactive approach to cash flow is key. This is the lifeblood of your business, and putting a professional recovery process in place can enhance business growth and success.  

“Late payments causing you a headache? Securing remuneration could be easier than you think…”

Collecting debts can prove to be a tricky task. Many of our clients voice concerns about the difficulties of chasing a debt, without chasing away their clients. Indeed, debt collection practices have come under increased scrutiny in recent years, with many people expressing a negative opinion towards unorthodox debt recovery methods. Here, we look at why a debt recovery letter from a solicitor may be more beneficial to you than a letter from a debt collection agency.

The benefits of a Solicitors letter

A solicitors letter comes with a lot of benefits. One of the main ones is that solicitors have a wide range of knowledge on regulations and legal occurrences when chasing a debt. This is particularly beneficial to businesses as it helps to maintain reputation – nobody wants a backlash from their clients from their debt collection practices. A letter from a solicitor can be just as quick and cost effective as more traditional debt collection methods, but will additionally provide a more formal and sincere way of requesting payment before legal action is escalated.

It provides more options

Once a Letter Before Action (LBA) has been sent by a solicitor, it opens up the door to a number of future options. By authorizing a solicitor to send the letter, you are letting the debtor know that you are serious about taking the matter further, should you be required to do so.

On average, 86% of the cases we handle at Lovetts are dealt with at the Letter Before Action stage. However, if you do send an LBA to your debtor and do not receive a satisfactory response, then the next stage in the legal process is to issue legal proceedings through the County Court. A County Court Judgment (CCJ) is a court order that confirms that the debtor has defaulted on payment. Once a CCJ has been obtained, it is then possible to ‘enforce’ that debt immediately by instructing a Bailiff or High Court Enforcement Officer.

Heres a short video explaining the process of a Solicitors Letter

Using a debt recovery solicitor in this case will help prevent any potential backlash as they will always advise on the most appropriate method of enforcement based on their experience and expertise with similar cases. If a case were to be disputed, having access to legal advice would be hugely beneficial as this will help you to set strategy and implement next steps in the proper way.

It sounds more sincere

There is nothing worse than receiving a letter from a debt collection agency. Many charities have been taking action against the predatory actions of some debt collection practices and this makes businesses more reluctant to use a traditional debt collection service to pursue their debts. However, when instructing a solicitor to send a letter, you know you are dealing with a professional legal sector entity. The written format itself will generally be more sincere, and instructions will allow the debtor time to fully assess and respond to the situation at hand before legal action is taken. This benefits your business and greatly assists in preserving the business relationship with the client in question. 

Looking to send a Solicitors letter to a debtor? Download our free LBA template to get you started on how your Letter Before Action will look like to the debtor. 

As most business owners and CFOs know, cash flow is the life blood of a business. Without cash flow a business will cease to exist. It is therefore important for all businesses, large and small, to manage their cash-flow effectively. One common threat to cash flow that many credit controllers will recognize is late payments, which can do significant harm to a business. Here, we look at why cash flow is important and how cutting down on late payments can help improve things.

Why cashflow is important?

Research conducted by American Express reveals that one third of small firms that have missed a payment deadline, have subsequently had suppliers withhold goods or services. Additionally, 28% have had their relationship with suppliers tested because of cash flow issues, while 35% have had to cough up additional late payment fees for missing deadlines. This shows the implications of not being able to control the flow of money within a business and the dangers of business failure due to late payments. Additionally, having certainty in your cash flow can mean greater overall certainty in your business, providing for example the confidence to make purchases quickly without having to wait.

What late payment can do to cashflow

Late payments can lead to massive amounts of resources being eaten up to pursue debts, both financially and in terms of time spent by credit controllers. SMEs tend to struggle the most as they may not have credit controllers in place to chase invoices that are pending. At the beginning of 2018, B2B invoice provider MarketInvoice revealed statistics showing that 62 per cent of invoices issued by UK SMEs in 2017 (worth over £21 billion) were paid late.

Late payment could affect the expenses companies usually have such as staff salaries, supplies, rent and expenses for operations. Cash flow is very important, especially when coming up to hard months where cash is tight or when a crisis happens. Having late payments could leave you dipping into your reserves instead of using them to invest in business growth.

For companies seeking to manage their cash flow more effectively, we offer the following four pieces of advice:  

1. Ask for up-front payment
This is particularly useful for service based companies as it can ease the anxiety of doing work for a client that you think has the potential to not pay at the end of their customer cycle. It is not always recommended to approach matters in this way, but in certain instances it can be useful when apprehensions about certain clients present themselves.

2. Credit checks for clients
This is a great way to obtain a forecast on whether a client is a good payer or not. Credit controllers use tools like Experian Business as an effective way to monitor clients and reduce the risk of bad debt. This minimises the risk of taking on late payers who could jeopardise cash flow.

3. Set firm late payment penalties
A strong late payments strategy can be effective in maintaining cash flow by ensuring that clients pay on time so as to avoid additional charges if they do not meet deadlines.

4. Outsource late invoices to a debt recovery firm
By outsourcing your debt recovery to a third party, you can preserve the trading relationship with your clients and have a peace of mind that your invoices are being recovered on time. This also saves time and has been proven to be very cost effective compared to assigning it to a credit controller.

Debt collection solicitors can send a Letter Before Action (LBA), which is a letter that requests payment within 7 days before court action is taken and warns of the imminent issue of a court claim. Our research shows that the LBA is successful in securing payment in 86% of cases, and in the remaining instances legal options are available.  

Late payment is a common problem for all businesses such as accountancy firms, recruitment agencies and contractors. 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. Here we reveal the most common excuses for late invoice 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, businesses  can benefit from keeping a paper trail of when you sent an invoice and all your communication with a debtor. In this age, many businesses operate digitally so as a business you have to be sure to email invoices to the right department to make payments easier. To be certain that your customer gets the receipt, it never harms to send it in the post too. Having a physical copy enables the debtor to have no excuse of payment.   

You said pay in 60 Days Not 30!

If your T&Cs don’t clearly state a payment period, you will hear this line alot. 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 Sent The Cheque Last Week

If a debtor has legitimately sent a cheque you should be able to track that in some way, well hopefully. Request the cheque number 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 you 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 Financial Director Is On Holiday, So We Can’t Pay

This one is our favorite. A business should still be able to operate in the absence of a director, especially for such a short time frame as a holiday. Business don’t just suddenly stop running when the director is not around. If you’re not doing so already, request 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 director will probably not like the incurring interest on the late payment either if they continue to withhold. In the event of receiving awful excuses like this, you might want to contact a debt recovery service. Get started with our Free LBA template to see how your letter will look like.

This article first appeared in Your Business magazine in July 2018. 

For many businesses, maintaining the balance between timely payments and healthy customer relationships can often feel like a difficult task. But in 2018, speeding up the payments process can be much easier – and more straightforward – than you might think.

At Lovetts, we offer a letter before action for as little as £1.50 plus VAT. This secures payment within 86% of our cases.

If you have customers that pay late, it is your right to claim interest and compensation to help ease your inconvenience. Under the Late Payment of Commercial Debts (Interest) Act 1998 and subsequent regulations, you can claim interest and receive fixed-sum compensation if payment isn’t received.

Compensation brackets are as follows: 

£40 for invoices up to £1,000
£70 for invoices between £1,000 and £10,000
£100 for invoices over £10,000

Our research has shown that the perception amongst 58% of businesses is that chasing late paying customers through Solicitors could damage relationships with their customers. This fear is unfounded because in our experience customers have no objection to paying what is rightfully due to our clients and the relationship between the two parties continues with future trading.

By failing to deal with late payments, businesses are suffering financial damage by not asserting their late payment law rights. Late payment doesn’t only affect your bottom line – it can also put your cashflow and day-to-day operations at risk and threaten your survival. It’s important to get what you’re owed without unnecessary delay, and taking a professional approach to this process is vital.

“As solicitors, we’ve found that correspondence from us is far more effective in moving a late payer to action,” says Michael Higgins, Managing Director for Lovetts. “Reminder letters from businesses that are owed can often be ignored, while notifications from debt recovery agents are not always welcome. So when looking at late payments as part of the wider accounts cycle, solicitor assistance can be extremely useful. Furthermore, thanks to the efficiency of the Lovetts business model, obtaining the added impetus to pay that comes from a solicitor’s involvement has never been more cost-effective.”

Lovetts Chairman, Charles Wilson, highlights the necessity of a personalised service: “For me it was important that a client could get exactly what I would want. In 2013, we had to harmonise our law with European legislation. We were able, by statute effectively, to have recovery costs included as a right. So, if a client is entitled to claim compensation and interest they could also recover their recovery costs. And why shouldn’t the debtor pay? They are the one who caused the problem.”

With the advancements that have taken place in digital commerce in recent years, business-to-business transactions are now being completed more easily and swiftly than ever before. In 2018, securing late payments could also have become more straightforward than you previously thought.

As most business already know, pursing legal matters can be very costly for any business. A survey undertaken by YouGov, 2018 states that 70% of participants thought legal documentation was not easy to comprehend, while only 8% mentioned that legal fees are good value for money. (Lawbite.co.uk). 

Research shows that there’s a reluctance for businesses to invest in legal advice because of the thought of competitive pricing when in fact it’s actually beneficial to seek legal advice. Legal advice offers businesses flexibility in terms of how to properly go forward with legal proceedings and their chances of success. It’s also a very cost- effective way to receive counsel over legal matters for a business without spending a lot on fees and taking risks. Receiving legal advice gives businesses a piece of mind that will allow them to assess risks, strategy and jurisdictions.

10 Tips for Effective Debt Collection

Often times it’s very difficult for a business to know what strategy to go with without consulting with a legal firm. In most cases some businesses have legal staff to handle case matters. However most businesses end up spending thousands of pounds only to find that their case was un-defendable. Going to court may seem like an ideal solution if a client has failed to pay a bill or broken the terms of the contract. However, taking a case to court can be costly and time-consuming. In addition to paying court fees, it’s likely that you’ll need to pay expensive bills for legal representation. In some cases, the cost of going to court may be higher than the money you’re hoping to recover and it could take up to 2 years to get to trial in some cases.

Legal Advice eliminates any risks from taking chances which could save you more money in the long run. A litigation team has the knowledge and experience to assess if further evidence is needed to further improve your chances of a successful case. Getting good advice at the outset of a dispute is vital. You might discover that a case is stronger than you first thought; or equally, that it is weaker than you think. Don’t go to war without first counting the cost!

Watch our short video that explains Lovetts Legal advice 

It’s important for a business to highlight where their strengths and any weaknesses lie which is important when receiving legal advice. Legal advice is a foundation of having discussions  on tactics and the figuring out best way to try and recover the money as quickly as possible in the most cost effective way. In addition,  litigation teams also help further explain the legal/litigation process to give them an idea as to how a case is dealt with. This saves your business thousands by getting expert advice that will ensure you wont dispute a case you don’t have a chance of winning.

 In some instances, the threat of legal action is enough for clients to pay their invoices and settle any outstanding debts. If there’s dispute over the total of an invoice, rather than simply an issue of a late payment, you may want to explore the possibility of using alternative forms of dispute resolution.

Often, mediation or conciliation between the two parties can enable the issue to be resolved quickly, efficiently and without any bad feeling. If you have a longstanding business relationship with the client, this could be the ideal way to move on from the issue without damaging any future transactions. So turns out legal advice does a lot after all.

Have any Questions? Contact Us!

Recovering debts is never easy. Even for big corporations with fancy legal departments and scary letters. Having specialized in debt recovery for over 20 years, we have written 4 things you should consider when recovering your debt.

Information is Key

Having information on the debtor and how much is owed is crucial to effective debt recovery. By issuing out invoicing s you can track how long payment hasn’t been made and adjust interest attributed from late invoices. Having information on the key figures such as financial director or credit controller also puts you in the best position in terms of reaching out to them and coming to an agreement before taking legal action. In addition to legal action, having information on the debtor also puts you in a strong position if the debtor decides to dispute your case. Often times cases are lost because of the lack of information.

How will recovery services integrate with my company?

Assess Your Options

When looking to recover a debt you need to access what the right steps are to recovering the debt efficiently. You may need to ask yourself, Is the debt owed by an individual or a business? Are the debtors fully aware of your terms and conditions? Or have you contacted the debtor to seek an arrangement to preserve the trading relationship?

If you send a Letter Before Action to your debtor but you do not receive a satisfactory response then the next stage in the legal process is to issue legal proceedings through the County Court. This is a formal process where the debtor will be sent a court form requiring them to pay the debt, plus interest and costs within 14 days. 

If you are looking to recover a debt that is then disputed then you need assess; how best to approach the case, whether its taking legal action. A lot of legal services offer legal advice for dispute resolution which has been proven to help businesses allocate their budgets correctly in terms of recovering debts. 

In addition , If a debtor does not make payment on demand and the debt is not disputed, they are technically deemed insolvent. If you are concerned that your debtor may have other creditors chasing payment from them, commencing Winding Up Proceedings against a company or Bankruptcy Proceedings against an individual means you could jump straight to the front of the queue for payment.

Use The Law on Late Payment

The Late Payment of Commercial Debts (Interest) Act 1998 has two purposes. Firstly, to compensate creditors for the late payment of debts. Secondly, to deter late payment. It only applies to the commercial supply of goods and services where you don’t have a provision for interest in your Terms of Business.

In brief, 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. If you have a clause relating to late payment interest in your terms and conditions, you must charge interest in line with the amount stated.

If not, you are able to use the Late Payment of Commercial Debts (Interest) Act 1998 and claim interest at 8% over Bank of England Base Rate

Consider Outsourcing to Specialist debt collection firms

Outsourcing your debt recovery can help reduce your costs as you will stop spending money on overheads such as employing extra staff to chase payment. When you use debt collection solicitors, there is a higher success rate of recovering money. Customers are more likely to pay if they receive a letter from a solicitor. This is often because they know that the threat of legal proceedings is serious enough to provide sufficient motivation to ensure the debtor makes payment of your debt a top priority.

When a payment becomes overdue, it’s important that you act quickly to collect. The longer it takes for a debt to be recovered, the more difficult the process of recovering becomes. However, in the world of business that time moves fast, and sometimes we feel like there aren’t enough hours in the day to deal with everything. 

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10 Tips for Effective Debt Collection

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 How To Deal With Late Invoice Excuses : Guide to Debt Recovery

The Necessary Steps In Recovering Commercial Debts

Late Payment Charges – What You Need To Know

If you’re reading this you’re probably wondering how you’re ever going to recover debts from unwilling debtors. Recovering debts is never an easy step for many businesses to take because of how time consuming it usually is. This is why we have issued out clear and easy steps to recovering your debts. After reading this, you will know the necessary steps to take when looking to recover your commercial debts.

Step 1 : Send a Letter Before Action

Before issuing any legal proceedings a Letter Before Action (LBA) should be sent to a debtor. An LBA is a formal letter which sets out what is owed from a debtor to your business. It gives your customer a set time period (usually 7 days) in which to pay. An LBA can be sent for as little as £1.50 plus VAT and on average, 86% of cases result in payment at this stage read more.

Step 2: Start a Legal Claim

If you send a letter before action to your debtor but you don’t receive a satisfactory response then the next stage in the legal process is to issue legal proceedings through the County Court. This is a formal process where the debtor will be sent a court form requiring them to pay the debt, plus interest and costs within 14 days. If the Late Payment of Commercial Debts (Interest) Act 1998 applies, compensation of £40 – £100 per invoice will also be added to the value of the claim.

Insolvency – An alternative to issuing a County Court Claim is to commence insolvency action such as winding up proceedings against a business or bankruptcy proceedings against an individual.

Stage 3 : Judgment

A County Court Judgment (CCJ) is a Court Order that confirms that the debtor has defaulted on payment. A CCJ can be obtained immediately after the expiry date of the County Court Claim. The CCJ is the final decision by the Court which gives you the power to take enforcement action in order to collect the debt. The CCJ is also recorded against the debtor’s credit record affecting their ability to obtain credit.

Stage 4: Enforcement

Once a County Court Judgment has been obtained, it is then possible to ‘enforce’ that debt immediately. The most common method of enforcement to instruct a Bailiff or High Court Enforcement Officer to attend the address of the debtor and collect the debt or seize goods. However, there are other enforcement methods that can be used depending on the circumstances of the individual case. At Lovetts our paralegals will always advise on the most appropriate method of enforcement based on their experience and expertise with similar cases. 

Still not Clear? Watch our short video

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Businesses often wonder how effective a Letter Before Action (LBA) actually is compared to sending their own warning letters to their debtors. After reading this guide you will uncover the true reasons as to why LBAs are so effective

Proof is in the numbers

Lovetts analysed the success rate of the Letters Before Action it has issued on behalf of clients over the past year and found that 86%* of cases settle at the letter before action stage. Despite this, businesses are still reluctant to take action against late payers. We have found that on average, businesses are waiting 64 days from the date the invoice is due before sending a letter before action. This is due to the attempt to maintain business relationships and services. By instructing a debt recovery solicitor to send a Letter Before Action, you will be saving alot of time and money which could be used to further your business. 

Its Less Hassle

Sending emails, faxes, invoices, contacting every director; sound familiar? A lot of business know the stress chasing a debt will do to a company. It leads to contempt and anger towards the debtor which could affect morale. By instructing a solicitor to write an Letter Before Action on your behalf, it elevates hassle on your part because it leaves you to carry on with your business knowing that your debt is being recovered at a small fee. We see it as a quick and easy service for you to maintain your business relationship with your debtor but still recover the money you’re owed legally..

It invokes action

If you have chased a debt before chances are you are aware of the trouble of getting responses. We have encountered businesses who have waited months to receive payment from late invoices or have debtors that alleviate from the payment plans setup. This is why we implemented a Letter Before Action Template in place for clients who are having trouble getting payment on time. In some cases we have found that debtors intentionally wait until they receive an LBA from solicitors before they make payment thus invoking them to take action. This shows how our service is respected within business practices 

If payment still isn’t forthcoming, you can get tougher by laying out a set date by which payment must be made otherwise legal action may be the result. Usually, payment within seven days is a more than reasonable demand, giving the client time to read the letter and act upon it.

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Download our Free Template and Guide to get started on recovering debts

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