A lot of businesses are familiar with sole traders/individuals who simply cant pay their invoices on time. There are many reasons why sole traders don’t pay such as lost invoices, unexpected clauses they didn’t read into to unexpected charges that they could not afford. Regardless of the reasons, as a business you need to be resilient in terms of receiving payments from individual/sole trader debtors.
Agree on terms before taking on the customer
Outlining your business agreement is a sincere way of building trust with the customer so that they understand the process of the payments. A lot of business outline their terms and conditions to a customer before and after the point of sale. Having this process infuses trust within a customer to deliver payment once the service has been made and commits them to paying.
Have a strong policy that punishes late payers
By having strong polices instilled within your service, it ensures that customers have the mutual respect you desire from your audience. A policy could be as simple as having a 10 day late fee installed when a payment is late. This ensures that customers know you mean business and that late payment isn’t condoned.
Watch our short video on Pre-Action Protocol
Hiring a debt recovery service that specializes in Individual debtors
As a business is simply not cost effective to be chasing every single customer who hasn’t payed for your services. Some circumstances could prevent you from reaching out to disappearing debtors which causes a lot of strain in your business. Hiring a debt recovery service allows you to resolve the matter without the need for court proceedings. Debt recovery experts would ensure the cooperation between parties to act in a reasonable and proportionate manner. They are able to send a Pre-Action letter as soon as the debt becomes due
What is a Pre-Action Protocol Letter?
A Pre-Action Protocol letter requires
• details of the agreement under which the debt is payable including who made the agreement, whether it was written or verbal and the date it was made. It also needs to be stated that further information or a copy of the written agreement can be made available to the debtor upon request;
• payment details including the method of and address of payment, and details on how the debtor should proceed if they wish to discuss payment options;
• an enclosed Reply Form, Information Sheet and Financial Statement Form, all of which have been provided for use in the protocol itself;
• a reply address where the debtor is directed to send the Reply Form
Looking to send a letter to an individual/Sole-trader? Download our free Pre -Action Protocol For Debt Claims Guide
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How to send your Pre-Action compliant LBA
A lot of businesses find themselves wondering why their invoices aren’t being paid on time. This article will outline 4 reasons why your debtor isn’t paying you. With the ever changing economy, some business will go through tough phases in their financial year which could lead to invoices not being paid. However, there’s usually underlying reasons as to why they don’t pay you on time.
1) Your Business practices are passive
A lot of businesses are very laid back when waiting to receive payment on their invoices which a lot of debtors take advantage of. Because your business has a ‘pay me later’ approach, this gives the debtor an opportunity to leave your business as its least priority when it comes to payment. As a business you need to agree on concrete terms that urge a customer to pay invoices on time in order to keep your relationship mutual.
2) They are not satisfied with the Product/Service
One of the primary reasons for debtors to pay late is the dissatisfaction of the service/product they have received. In addition there could have been complications to the service or product which lead to an unwilling debtor. For example if a construction company received faulty goods, they will have less respect for their supplier therefore ruining their business relationship.
Having a smooth and efficient service always leads to a better cashflow and satisfied customers who will pay on time. Its not an easy flaw for a business to admit, however it should be noted that a bad business relationship could lead to disastrous complications in a business cycle
3) They have Cash flow issues
One of the common reasons for late payments is an occurring issue of cash flow from struggling businesses. It is important to communicate effectively with customers to find the reasons as to why they are struggling with cashflow issues and maybe offer a payment plan as a gesture of goodwill.
They could just be going through a tough seasonal change or they may have some changes in their business they were not prepared for. It’s not a great business strategy for debtors to admit that they’re struggling because it makes them lose credibility.
4) Your Business doesn’t know the Late Payment Law
Under the Late Payment of Commercial Debts (Interest) Act 1998 and subsequent Regulations, companies can claim interest and also receive fixed sum compensation if a payment is not received or if a payment is late. Although the law protects businesses from the damaging effects of late payments, some companies and organisations have been reluctant to use it. In some instances, people assume that instigating debt recovery will harm commercial relationships.
However, late payment law can be used to recover debts without souring existing business arrangements. Many businesses that use the late payment law still maintain good relationships with their customers and continue to trade with them. By failing to utilize the late payment law, it could be costing your business thousands of pounds in lost compensation, interest and costs.
When looking to recover debt owed internationally, businesses never consider how difficult it is to recover money from a customer who is not only in a different time zone to you but also has different laws and customs to abide by. Its not as simple as putting on your best Liam Neeson impression on the phone to a debtor. Here are the steps to take when looking to recover a business debt internationally.
Do Your Research
Recovering a debt internationally can be quite a taxing process for businesses that aren’t experienced in international debt recovery. By hiring a debt recovery service, they will research the history of the debt and any contractual issues that may be compromising payment. Expert debt recovery firms can also gather information about the debtor such as existing addresses,/contacts and identify key personnel who may authorize payment. This requires a lot of diligence and a lot of key information from the business that was in contact with the debtor. As a business you need to have as much information as possible about the international debtor i.e paperwork, signed contracts to have a chance at finding them. Valuable information such as invoices and lists of contacts will be very useful for the international debt recovery team you assign.
Act quickly
Alot of businesses like to sustain a business relationship with an international business debtor without being stern and upfront. From the cases we have taken on. 80% of the time, the debtors have been given many chances by our clients which gives them enough time to disappear off the face of the earth or destroy any evidence of a business relationship. Businesses would benefit from getting in contact with an international debt recovery service as soon as possible as it will allow them to recover the debt owed swiftly and promptly. This in turn allows businesses to carry on with their services without worrying about a debtor who keeps them on a hook.
Don’t be Cautious to Seek Legal Advice
Alot of businesses feel as that they don’t have enough knowledge on the international laws in terms of chasing debtors and are very reluctant to seek legal services externally. However studies have shown that it is more cost effective to seek legal counsel when chasing a debtor who is in a different country which has different laws and jurisdictions. It is vital for a business to know how to properly issue court proceedings against a debtor who is based overseas. By seeking advice, it allows your business to focus on business matters without hiring more staff to find a debtors overseas.
Jurisdiction, Jurisdiction, Jurisdiction
If you conduct business abroad, having these clauses allows you to control under which country’s law the contract falls under and which country’s courts can take legal action. We have a guide made by our expert international team which guides businesses on why your contract should specify jurisdiction if you do international business. It also gives advice on what to consider when choosing the law to apply to your contract. This is very important and it also shows other businesses where you stand within your international agreements.
Lovetts Solicitors exhibited at The Business Show held at the London Excel centre on 16th and 17th May 2018.
It is the largest business show in Europe hosted by many growing businesses in the UK. The show provides a great opportunity for businesses of all sizes to network with over 25,000 aspiring, developing and expanding companies. It provides the opportunity to sell your products and services to these highly targeted visitors on a face to face basis.
Whether you are looking to grow your own business or to gain new contacts over a wide variety of different networking opportunities; this expo provides a wonderful chance to discover new opportunities and innovations. Come join us to see Britain’s leading business experts share their stories and secrets. There will also be a chance to join in with the interactive training sessions led by industry experts. Attending this expo is also a great way to be exposed to businesses you necessarily didn’t know about. Its common for start ups to think they’re ahead of the game, however attending the expo shows you more about your industry and where its moving. This also provides insight on the latest trend in this ever changing economy.
During the exhibition, we presented our services for everyone that wished to come and find out about our UK and International Business Debt Recovery services. We also offered a few freebies that are essential to any aspiring entrepreneurs. We see ourselves a one of the industry’s leading business debt recovery service. Its no wonder Lovetts won the Debt Recovery Law Firm of the year.
The Business Shows also provides insights from leading industry leaders from different backgrounds. The show will feature keynote speakers which include, Simon Woodroffe- founder of Yo Sushi and YOTEL. Perry McCarthy- Top Gears original Stig, Tommy Fordman- ITV Star and renowned successful entrepreneur. Jordan Daykin- BBC Dragons Den youngest and most successful Entrepreneur. If you have a thirst for knowledge then these keynotes could be an excellent learning tool for yourself or your employees. The reason behind why these keynotes are so special is because the speakers come from different walks of life. They’ve made mistakes and overcame obstacles along the way and are looking to share advice on how to overcome obstacles in your businesses.
This message speaks deeply into what Lovetts values and that is overcoming obstacles and sharing advice. We as a service make it our goal to inform our clients on how we can we help them, manage their clients who withhold considerable amounts of debt.
Debt recovery specialist Lovetts Solicitors have recently been featured in a new ITN productions programme titled ‘Credit Champions’. The film was commissioned in partnership with the Chartered Institute of Credit Management (CICM) and was introduced by national newsreader Natasha Kaplinsky. The programme promoting excellence in credit management and raising awareness of its vital role within the business community was unveiled at the recent Credit Summit event.
Philip King, Chief Executive of The Chartered Institute of Credit Management said:
“We welcome the engagement of Lovetts in this genuinely important and ground-breaking programme that looks to project credit management – and the work of the wider credit industry – into the minds of business owners, leaders and politicians throughout the UK. Lovetts is an essential part of the credit community, and plays a key role in driving best-practice and achieving high standards of excellence for its customers.”
The programme explores the impact credit management has across the supply chain and the need to support growth of businesses and the economy through healthier cash flow. Late payments and outstanding debt can significantly damage the cash flow for a business and the recovery of these debts can often occupy businesses valuable resources. In the programme we explain why so many clients instruct us to recover their debts, which is largely down to the clear and transparent fees, simple and quick process to log the debt, coupled with the belief that if a client is owed money it should not cost them to recover it. The programme also highlights the benefits of Lovetts’ unique CaseManager System and features testimonials from existing clients.
Charles Wilson, Chairman of Lovetts Solicitors added:
“We were delighted to be approached by the CICM to take part in this programme as we have an important message to share with credit managers. I have been trying for 20 years to get companies to be able to recover the money that is justly due to them without having to pay for it and in our section of the programme we explain how simple the process can be to help credit managers recover debts.”
The full Credit Champion programme, featuring key industry interviews, news-style reports and editorial profiles can be viewed on the Chartered Institute of Credit Management website.
On Monday 15th January 2018 the news broke that Carillion, the giant construction firm and government contractor, was going into liquidation. Unlike the process of administration, where the company in question is able to continue trading whilst viable parts of the business are sold off in an effort to ultimately stay afloat, liquidation means a company ceases trading immediately and steps are taken to raise as much money as possible to settle its debts.
A liquidator is appointed to handle this process, and at this stage Price waterhouse Coopers LLP (PwC) have been appointed as Carillion’s liquidators. It is possible for Carillion’s creditors to have a meeting and vote to agree a different liquidator to take PwC’s position, but it is unlikely to change in this case.
PwC should now inform all creditors about the insolvency and send them each a proof of debt form. If you are a creditor and you have not yet received this form to fill, it is important that you make contact with PwC to ensure you are listed as a creditor. The next stage of the process will be to go on to assess whether there are any assets ready for liquidation, and take action accordingly. You can visit the PwC website page here.
Liquidation Debt Payment Priority
If monies are realised from the sale of assets of the company, the funds will be released in accordance with a certain priority:
- The liquidator and the cost of their services.
- Secured creditors or creditors who have been granted security. This will include institutions such as banks, lenders and finance providers.
- Company employees can get in line to claim for payout only after the secured creditors have been paid, and these claims are subject to limits that the government has set in place.
- Unsecured creditors will consist of suppliers, landlords, contractors, clients due a refund and taxman.
- Shareholders are the last priority for payment in this situation.
Creditors will be deemed as unsecured unless they gain security by having a charge against the assets. Even if you have a County Court Judgment (CCJ), you will be deemed an unsecured creditor.
What happens with insolvency payout?
The above list outlines the order of priority in a typical liquidation. Unfortunately there is usually only enough money for just the secured creditors, and more often than not the remaining groups won’t get paid. If there is any money left for the unsecured creditors it is all placed into a creditor’s pot and shared out, but it is likely creditors will only receive a few pence for every £1 of debt.
The Guardian has written an excellent article outlining what the liquidation means for a variety of groups affected by Carillion’s demise.
In the case of Carillion, the government and the Pension Protection Fund (PPF) are stepping in to ensure the running of certain public service contracts and provide a safety net for pensions. However, most subcontractors will be left struggling with bad debt, and many individuals will be left without their jobs. It is expected that the fallout from this event is going to be felt in the industry for a long while.
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On 15th January 2018, construction giant Carillion announced they were going into liquidation, putting 43,000 jobs at risk worldwide and leaving a large number of sub-contractors and suppliers out of pocket.
For some, the insolvency of Carillion will have been a shock; for others, perhaps less so. Many of you reading this would have seen the warning signs throughout the second half of 2017. In the space of 5 months, most recently in November, Carillion announced 3 profit warnings – a sure sign that business was on shaky ground.
Many of Carillion’s suppliers and sub-contractors have, in the previous 8 weeks, been able to secure payment of the debts owed to them. Debt recovery has helped them to avoid writing off unpaid invoices as bad debts, a step many companies will unfortunately have to take. Lovetts Solicitors were able to collect £290,000 from Carillion on behalf of clients without the need to issue legal proceedings.
Sending a Letter Before Action
In the majority of cases Letters Before Action (LBA) were sent to Carillion. An LBA is a formal debt recovery letter sent to a debtor, which requests the payment of a debt and warns of the imminent issue of a court claim.
An LBA sets out what is owed and specifies a deadline by which payment of the debt must be made before further debt recovery action will be taken. These letters are usually low cost, and result in payment the majority of the time. Lovetts’ letters result in payment of 86% of debts with no further action required.
Unfortunately, when certain companies are struggling with cash flow issues they often have a policy to only settle invoices once a solicitor’s letter has been sent. Carillion potentially used this approach, which means that contact directly from the credit control departments of their suppliers and sub-contractors would have been ignored.
If you are worried about the solvency of a company you are owed money by, it would be prudent to contact a solicitor and receive assistance with the debt collection process.
Sending a Draft Winding-Up Petition
Due to the financial problems Carillion faced, it is likely that a lot of creditors were chasing them for outstanding funds. When faced with this situation it is important that you ensure you are at the front of the queue for payment, and this can be achieved, metaphorically speaking, by shouting the loudest – in the form of sending a Draft Winding-Up Petition.
A Winding-Up Petition is a document sent to court in order to wind up a company that is unable to pay undisputed debts on demand, as they are deemed insolvent if this occurs. The process of liquidating the company can then begin.
However, when creditors do not want to issue a Winding-Up Petition immediately to the Court, you can ask a solicitor to send a Draft Winding-Up Petition. A petition is prepared and sent to the debtor, in this case Carillion, with an accompanying letter explaining that if payment of the debt isn’t received within a set time period (typically 7 days), then the petition would then be presented to the court. In our experience, 81% of debts are paid upon receipt of this warning, as a company will in most cases take every step possible to avoid liquidation.
The best course of action to take is to continually monitor the clients you offer credit to, and be proactive by implementing debt recovery steps as soon as a payment becomes late. This is what saved our clients £290,000 from Carillion and it could benefit you greatly in the future.
Late payment remains one of the biggest problems for UK businesses. However, late payment law is available to protect businesses from late paying customers.
What is late payment law?
Under the Late Payment of Commercial Debts (Interest) Act 1998 and subsequent Regulations, companies can claim interest and also receive fixed sum compensation if a payment is not received or if a payment is late. Although it is only applicable to business transactions, the aim of the Act is to discourage the culture of late payment.
Does your business suffer with late payers? See Lovetts’ Top 10 Tips for effective debt collection.
When is a payment late?
If your commercial contract specifies a date upon which payment should be made, it will be considered late if it is not received by this time.
If a commercial contract does not state when payment should be made, the Late Payment of Commercial Debts (Interest) Act 1998 comes into force. Under the law, payment must be made within 30 days of either the invoice being received; the goods/services being received or the goods/services being accepted. If payment is not made within this timeframe, it is classed as late.
How much compensation can I claim?
Late payment compensation can be added to each qualifying debt. The following fixed sums can be claimed as compensation
- £40 compensation for invoices up to £1,000
- £70 compensation for invoices between £1,000 – £10,000
- £100 compensation for invoices over £10,000.
If you have several invoices that are outstanding, the compensation you can claim could be significant.
How much interest can I claim?
Late payment interest is typically claimed at 8% above the Bank of England base rate, but the Court has the discretion to award interest at a rate that it believes is fair. Interest is calculated from the date the invoice becomes due until the date payment is made.
Can I claim the costs of collecting my debts?
Yes. Whilst the compensation is intended to cover the costs of debt collection, this isn’t always the case in practice. If a contract is signed after March 2013, the Late Payment of Commercial Debts Regulations 2013 are applicable and these allow companies to claim back any additional costs of recovering the debt, providing they are reasonable.
Utilising the Late Payment law
Although the law protects businesses from the damaging effects of late payments, some companies and organisations have been reluctant to use it. In some instances, people assume that instigating debt recovery will harm commercial relationships.
However, late payment law can be used to recover debts without souring existing business arrangements. Many businesses that use the late payment law still maintain good relationships with their customers and continue to trade with them. By failing to utilise the late payment law, it could be costing your business thousands of pounds in lost compensation, interest and costs.
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Businesses face a unique challenge when it comes to cash flow during the months of December and January as many companies close their doors between Christmas and New Year’s Day, so payment of invoices are often not processed until mid to late January. This delay in payments can put a huge strain on businesses that have to pay tax, VAT and rent during this period.
However, by taking proactive steps to secure payments prior to Christmas, a business can ensure it has a healthy cash flow resulting in a stress free start to the new year. Below are 6 steps that can be taken to optimise your payment collections.
1. Check that your customer has received your invoice and it is on a payment run
A common reason for late payment is a customer claiming that they have not received your invoice. By contacting your customers to check that the invoice has been received before the due date you have enough time to send a replacement if they claim they have not received it! Even if they have received the invoice, the customer can confirm to you that it is on a payment run.
2. Offer incentives to customers who pay in advance
Christmas time can be the perfect time to show your appreciation to customers who pay their invoices early, and many companies do offer prompt payment discounts to customers. This strategy incentivises customers to pay early. Your business may find the increase in cash flow and customer goodwill is often worth the discount.
3. Chase up overdue invoices immediately
Debt collection steps should be taken now. The only way to avoid the typical end of year wind-down is to get ahead of it and start pursuing late payments as soon as they become due. Businesses have a lot to do to wrap up the end of the year, so a small nudge is enough to remind them about the invoice. If not, there is still enough time to take further action before the bank holidays arrive.
4. Target customers with a history of late payments
Do not be afraid to be robust, especially with customers who are persistently late remitting payments. Most businesses have a small handful of customers who are responsible for the majority of their outstanding payments so targeting these accounts first is a good way to ensure your cash flow is boosted ready for the New Year.
5. Send a Letter Before Action by email
Letters Before Action (LBAs) are a cost-effective way of prompting customers to make payment. LBAs sent by email are ideal around this time of year because customers receive them faster, and from our experience the invoices in question are often paid faster as well.
On average 86% of customers pay their debts upon receipt of an LBA from Lovetts.
6. Issue Court Proceedings if pre-action correspondence hasn’t resulted in payment
Whether it is approaching Christmas or not, if your customer is not responding to your requests for payment and has ignored the pre-action letter you sent, the next step is to file legal proceedings by issuing a County Court Claim.
Luckily, you have given plenty of warning to your customer so you have time to do this before the holiday period. Taking legal action need not be complicated or daunting. For example with a few clicks of a button, you could instruct Lovetts through the Casemanager portal to issue court proceedings. The vast majority of claims are paid by debtors swiftly, as they wish to avoid a County Court Judgment.
Furthermore, we have found that most customers, when given fair warning, are not offended if you have to take this extra step. Many of our clients continue to trade with their customers after a court claim has been issued and paid with no further concerns.
The key to ensuring your business has a healthy balance sheet during the holiday period is to simply be proactive with your credit control and debt collection. Ensure you stay on top of your finances this December, and enjoy your time off this Christmas with no need to worry about the books when you return to your desk next year!
Send a Letter Before Action to your customer before Christmas using our free template
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When customers do not pay your invoices, it can be difficult to know how to proceed. If your pre-action correspondence has not resulted in payment, it is usually worth taking legal action to ensure your company is paid. Let’s take a look at how legal debt recovery works.
What is the first stage of the legal debt collection process?
Before any legal action is taken, a Letter Before Action (LBA) should be sent to the debtor. This letter gives your customer a deadline in which to pay their debts. It costs very little to send an LBA and in our experience 86% of undisputed debts are paid at this stage.
Watch our video!
This 30 second video outlines the steps you will need to take when legally pursuing a debt.
How do you issue a money claim online?
If the LBA does not result in payment, it’s time to issue your formal legal claim. If the amount you’re claiming for is less than £100,000, as it is for most claims, you can do this by submitting a Money Claim Online (MCOL) or by instructing a specialist debt collection Solicitor to issue the claim for you.
If you issue through MCOL, you will need to provide details of the claimant (yourself or your business) and the defendant, as well as the particulars of claim. This includes how much money is owed to you and why. You may also choose whether you want to reserve the right to pursue interest on your claim.
Finally, you will be asked to pay a court fee by credit or debit card before the claim can be issued. Your claim will then be issued within two working days from the date that you submitted your claim.
Does your business suffer with late payers? See Lovetts’ Top 10 Tips for effective debt collection.
What happens after a money claim has been issued?
The defendant will then receive a claim pack within five calendar days. The fifth calendar day after your claim is issued is referred to as the ‘date of service’. Within 14 calendar days from the date of service, the defendant is expected to file a response, or up to 28 days if they file an Acknowledgement of Service (AOS).
The next steps depend upon how the defendant responds to your claim. The ideal scenario is that they decide to pay you directly or offer a full admission and repayment proposal.
However, the defendant also has the option to file a partial admission, a full defence, or even make a counterclaim against you. Once the defendant has made their response, the court will ask you whether you wish to proceed with the claim.
Alternatively, the defendant might not respond at all.
What is a CCJ?
A CCJ simply stands for County Court Judgment . You can request a Judgment after the claim has been issued and the deadline to make payment or respond to the claim has passed. The CCJ will then be recorded against the defendant’s credit record and you will have the ability to enforce the debt.
What is a default Judgment?
A default Judgment is simply another name for obtaining a County Court Judgment (CCJ). However, it is called a default Judgment because Judgment was obtained as a result of the defendant failing to respond to the claim.
What steps can be taken if a debtor does not pay the CCJ?
If your invoices are still not paid, you may need to apply to enforce your Judgment. There are various ways of enforcing your debt, and although statistically most cases will be paid before you reach this stage, it is always worth seeking advice or help before commencing enforcement action. A debt collection Solicitor or a High Court Enforcement Officer will be able to assist you.
This, in a nutshell, is the how the online legal money claims process works. Most claims are undisputed and therefore taking legal action should not be feared.
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