The Pre-Action Protocol for debt claims was introduced in October 2017, amidst much debate within the industry around the potential strengths and weaknesses that this new legislation could bring. One year on we look back at some of the key changes that were implemented in the new protocol, and assess how they have impacted the industry.
What is the Pre-Action Protocol?
Introduced in October 2017, the Pre-Action Protocol for debt claims was introduced specifically to tighten the legislation around cases where the creditor is a business and the debtor is an individual. The protocol does not apply to business to business debt claims, but does cover sole traders. It was originally designed to encourage parties to enter into discussions about the reasons for non-payment early, and as a consequence help to resolve matters before proceedings are issued.
What are some of its key components?
The new legislation introduced a number of changes to the legislation around individual debtors, inclusive of:
- Additional information now needs to be supplied alongside a Letter Before Action, including details of the contract between the parties and details of outstanding invoices, together with further documents annexed to the protocol.
- The debtor now has 30 days to respond to a letter before action.
- The debtor must reply using a standard form provided within the protocol.
- If the debtor advises that they are taking debt advice, the creditor must allow a reasonable period of time for advice to be obtained.
- Proceedings cannot be issued until 30 days after the receipt of the completed reply form from the debtor (or 30 days from the creditor providing any documents requested by the debtor, whichever is the later) or failure by the debtor to respond at all.
- If the debtor requests documents from the creditor, the creditor must provide these as soon as possible and cannot issue proceedings less than 30 days from receipt of the Reply Form from or 30 days from the date the creditor provided any documents requested.
- If a payment plan is agreed and subsequently defaulted upon, a fresh Letter Before Action must now be sent.
- If no agreement has been reached following a response to the Letter Before Action, the creditor is required to provide the debtor with at least 14 days’ notice of its intention to issue proceedings.
All of which means that the new process has succeeded in expanding the amount of correspondence issued prior to proceedings, but arguably also complicates the process of debt recovery.
How have these changes affected claims?
In a recent feature titled ‘Breaking Protocol: The Pre-Action Protocol (PAP) promised much but has it delivered?’ Sean Feast, Managing Editor for Credit Management magazine, asked Lovetts Managing Director, Michael Higgins, if the changes had improved the customer experience?
“Possibly not,” says Higgins. “Prior to the protocol changes, the customer would receive one letter requesting payment. After the protocol changes, the customer is now receiving around ten pages of documents. Some customers appear to mistake this for a claim form/legal proceedings and are more fearful that legal action may have been taken without them having received prior warning.”
For Lovetts, the number of cases that have paid at the pre-action stage has almost doubled since the changes. However, there has also undoubtedly been some evidence of consumers using the protocol to delay payment.
“Some debtors are using the 30-day requirement as a delaying/stalling tactic,” he explains. “This is frustrating because it affects the creditor’s cash flow. However, increased engagement following PAP has seen the amount of time cases are resolved halved because of a more proactive approach to engagement.”
Does PAP need further amendments?
Certainly a rethink on the implementation of the Pre-Action Protocol could help to improve things further. The legislation is still too onerous on creditors in respect of time given (30 days) before legal action can be taken. It is also fair to say that the initiative has increased creditors’ costs, not least because of the amount of paper that is now being created, and that hasn’t necessarily improved the customer experience.
From a collections point of view PAP has undoubtedly been successful for a third party agent like Lovetts Solicitors and also achieved the ultimate aim of avoiding claims being issued, both of which are positive moves. The key now will be how the industry responds to preliminary implementation feedback and if it can update the protocol accordingly.
Lovetts Solicitors has become a trusted partner of Woking Football Club, displaying both a stand banner and a traditional advertising hoarding at the Club’s Kingfield Stadium in Surrey. In addition to displaying a ground presence, representatives from the firm will also be in attendance at a series of Woking events including fundraisers, and selected match days.
“Lovetts’ partnership with Woking FC highlights our commitment to local business and the local area,” said Michael Higgins, Managing Director for Lovetts. “Over the past two years, the firm has experienced a period of growth both nationally and internationally, but local-based businesses and those based in the wider South-Eastern region still make up a strong proportion of our client base. We are proud to be affiliated with such a longstanding and recognisable institution within the local community, and as a season ticket holder at the club myself, I look forward to seeing the Lovetts brand on display at the Woking ground!”
Woking FC currently plays in the National League South, which is the sixth tier of English football. Founded in 1889, the club has won the FA Trophy a joint-record three times. The partnership also provides Lovetts with a season-long presence in the match day programme, which is available at all Woking FC home games, as well as a presence on the official club website.
In addition to corporate partnerships, the football club also plays a significant role in local area initiatives, with its Woking Football in the Community scheme having been formally launched in 2004 to consolidate and grow the interface between the Club and the local community.
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.
10 Tips for Effective Debt Collection
Need More Information on 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…”
Lovetts Solicitors has this week been featured in the Evening Standard newspaper, in a special supplement looking at Financial Services. In an article examining how businesses can better optimise their cash flow Lovetts Managing Director, Michael Higgins, provides his ‘Top 5 Tips’ on avoiding bad debts.
The dedicated financial services supplement was given out alongside the main newspaper across London yesterday, and the firm was extremely pleased to offer its insights into the changing world of dispute resolution and debt recovery.
Michael Higgins, Managing Director for Lovetts, wrote: “All businesses rely on cash flow to survive. At Lovetts Solicitors we specialise in helping businesses recover debts. 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.”
It’s not the first time that the company has been featured in the business press in recent months, having spoken in August to James Caan’s Your Business magazine about the recent advancements that have been made in cash flow management and dispute resolution. Lovetts is committed to providing first class, transparent advice on all aspects of the debt recovery process, and this extends to the information that we as a legal and financial institution are allowed to put out into the public domain.
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.
Lovetts Solicitors has been featured in Your Business magazine. The James Caan-backed publication provides insights and practical advice on all aspects of running a business from accountancy to law and social media and marketing.
In an article looking at modern approaches to debt recovery, Lovetts provides information on the debt recovery process, recovery costs, and fixed-sum compensation.
“As solicitors, we have found that correspondence from us is far more effective in moving a late payer to action,” Michael Higgins, Managing Director for Lovetts, told Your Business. “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 a wider accounts cycle, solicitor assistance can be extremely useful. Furthermore, thanks to the Lovetts business model, obtaining the added impetus to pay that comes from a Solicitor’s involvement has never been more cost effective.”
The two page feature also includes information on CaseManager, the company’s unique software system, which allows clients to directly track the progress of their claims in real-time.