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.
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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.
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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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How To Deal With Late Invoice Excuses : Guide to Debt Recovery
The Necessary Steps In Recovering Commercial Debts
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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.
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Download our Free Debt Collection Clauses for T and Cs
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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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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.