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.
Related Articles
How Does the Recent UK Interest Rate Rise Impact Late Payment Law?
Late Payment Charges – What You Need To Know
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Debt Reminder Letters – The Best Approach
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
Related blog posts
How Do I Assess The Effectiveness Of My Third-Party Collection Agency or Lawyers
Debt Reminder Letters – The Best Approach
6 Questions To Ask When A Customer Says They Didn’t Receive An Invoice
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.
Related pages
How Do I Assess The Effectiveness Of My Third-Party Collection Agency or Lawyers?
Debt Reminder Letters – The Best Approach
6 Considerations You Should Make When Filing a Debt Claim
On 2nd November 2017, the Bank of England increased the base rate of interest from 0.25% to 0.5%. This is the first time that interest rates have been increased in more than a decade.
A rise in interest rates affects business activities as well as the buying habits of the customer. In this article, we look at the potential impact on business debt collection and the Late Payment of Commercial Debts (Interest) Act 1998.
Late payment can be a huge problem for businesses. According to the Federation of Small Businesses (FSB), SMEs in the UK are owed on average £6,142 in overdue payments by larger firms. This can cause severe cash flow issues for these SMEs and it has resulted in the closure of several companies over the years, motivating the Government to take action against the culture of late payment.
The aim of the Late Payment of Commercial Debts (Interest) Act 1998 is to assist the debt collection process by allowing businesses to add fixed sum compensation, interest and reasonable costs to overdue invoices.
What is the interest rate under the Late Payment of Commercial Debts (Interest) Act 1998?
The Act allows interest to be applied at a rate of 8% above the Bank of England base rate per annum from the date the debt becomes due.
What does the base rate rise mean for late payment interest?
It should follow that the interest rate under the Act is now 8.5% due to the base rate rising to 0.5%. However, that is not the case just yet and the late payment interest rate will remain at 8.25% until 31st December 2017.
Why is interest under the Late Payment Act remaining at 8.25%?
The base rate for late payments is fixed every 6 months for the purposes of calculating the interest owed on debts. Therefore the base rate on 31st December is used for debts that fall due between 1st January and 30th June and the rate in force on 30th June is used from 1st July to 31st December.
If the Bank of England does not change the interest rates next month (December 2017) the interest rate applicable on debts that become due between 1st January and 30th June 2018 will be 8.5%.
How do I know what interest rate to apply for an old debt?
It is possible to look back on historical Bank of England Interest Rates. however, for ease of reference we have set out the applicable interest rates below.
| Period Debts Were Due | Bank of England Base Rate | Late Payment Interest Applicable |
| 1st July – 31st December 2017 1st January – 30th June 2017 1st July – 31st December 2016 1st January – 30th June 2016 1st July – 31st December 2015 1st January – 30th June 2015 1st July – 31st December 2014 1st January – 30th June 2014 1st July – 31st December 2013 1st January – 30th June 2013 1st July – 31st December 2012 1st January – 30th June 2012 1st July – 31st December 2011 | 0.25% 0.25% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% | 8.25% 8.25% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% |
As mentioned, cash flow issues can arise if late payments are allowed to persist. Debt collection either in house or through a third party debt recovery provider is essential for any business. This includes utilising the Late Payment of Commercial Debts (Interest) Act 1998 during your debt collection process to ensure you are sufficiently compensated for the delay. By taking positive action you will help change the culture of late payment.
Find Out More
Go to the main Late Payment Law page
Read: Late Payment Charges – What You Need To Know
In July this year one of the best-known credit monitoring companies in the UK, Equifax, admitted that well over half a million UK consumers had their personal information compromised in a cyber-attack.
Sadly, this kind of thing is not uncommon, and as our reliance on technology grows the threat of such attacks will only increase, according to the National Cybersecurity Centre.
Since October 2014 a Government scheme known as Cyber Essentials has been mandatory for any supplier to Government working on contracts which involve the handling and storage of personal information for UK citizens.
There are two levels of cyber security that a company can reach, known as Cyber Essentials and Cyber Essentials Plus, with the latter involving the independent testing of company systems by an external certifying body, using a range of different tools and techniques.Lovetts Solicitors are pleased to announce that we have achieved Cyber Essentials Plus certification, meaning that we have taken the highest possible precautions against cyber-attack as recommended by the UK Government, and that our policies and security measures have been independently verified by Government approved auditors.
Here at Lovetts we believe that the personal data provided to us by you, our clients, deserve to be protected from cyber-attack in the best way possible, which is why we have taken this important step. We would encourage all businesses to challenge their suppliers and subcontractors as to whether they have gained Cyber Essentials accreditation and, if not, why not!
As we move into an era where cyber-attacks are becoming more and more common, rest assured that your personal information is as secure as possible with us.
When the Late Payment of Commercial Debts (Interest) Act 1998 was introduced it had two clear purposes.
The first was to ensure that creditors were properly compensated for the late payment of any debts, and the second was to avoid late payment being an issue in the first place.
With that said, there is still a certain amount of confusion over what a business can do about late payments from a customer. We’re going to clear a lot of those questions up today.
What is the late payment law in England?
The most asked question on the subject. Everything you need to know about late payment law in England falls under The Late Payment of Commercial Debts (Interest) Act 1998, which came into force at the start of November 1998. Since that time it has been amended slightly to fall into line with a European Directive but remains largely the same.
The first thing to point out here is that this law only applies to commercial debt, but isn’t exclusive to Limited companies. It can also include a sole trader, freelancer or anyone else who is categorised as self-employed.
Basically, the debt has to have arisen from some sort of business transaction. Personal transactions don’t apply.
How do I know if I can use the late payment law to recover a debt?
As mentioned previously, the debt in question has to be of a commercial nature. If it’s a personal debt owed to you by an individual for non-business purposes then this law won’t apply.
If, however, the debt is business related then you can take the steps provided by this law to recover any debt owed to you.
Again, it doesn’t matter if the debt is owed by a Limited company, a partnership, a sole trader or even a freelancer. As long as it’s of a commercial nature then it falls under this law.
It’s also worth noting that you can also claim retrospectively. You can claim compensation from clients who have been late in paying their debts up to 6 years in the past.
How much interest can I charge for a late payment?
Interest rates are set to a standard rate twice per year for a six-month period. From January 1st until June 30th, then from July 1st until December 31st.
The standard rate is set at 8% above the bank of England’s base rate at the start of each time period mentioned, although both parties can agree on a different rate of interest if they so desire so long as it’s considered a substantial remedy.
What isn’t allowed is a purchaser trying to force a supplier to accept a low rate of interest when the agreement is struck, as this is seen as a way of trying to evade this act. A low-interest rate clause is likely to be seen as unenforceable, at which point the official interest rate will be upheld.
As well as interest the creditor can also charge late payment charges for the cost of collecting the amount overdue. This ranges from £40 to £100 depending on the amount owed.
My customer is late paying – what now?
You have to start by contacting the debtor, and you must make sure to do so in a reasonable manner with a genuine attempt to amicably resolve the matter. This contact should take the form of emails, letters sent via recorded mail, and phone calls.
If you see no success using this first step, then you move to working with a reputable, professional debt collection specialist will be thoroughly knowledgeable in the steps to take if your initial contact with the debtor has not worked out.
It’s at this stage that the quality and professionalism of your chosen collection agency or Solicitor will make all the difference, so be sure to choose wisely!
What’s the difference between an LBA (Letter Before Action) and an LPD (Late payment demand)?
An LBA is a formal letter that your collection agency or Solicitor will send to the debtor informing them that court action is forthcoming if payment isn’t received within 7 days.
Normally this step is enough to secure payment from your client, but if not you can choose to instruct us to begin legal proceedings. At this point, you have complied with all legal requirements.
An LPD is essentially an alternative to an LBA and allows you to make a claim for interest, compensation and any other reasonable costs that have been raised by you having to collect a late payment.
As you can see, the process can become complicated for someone who also has to contend with running their business, deal with their other clients and customers and contend with day to day life, so after you make that initial contact and offer the debtor a chance to pay the debt that they owe the best course of action is to recruit the services of a specialist debt recovery firm or Solicitor who can help you get results quickly.
Written by: Charles Wilson – Lovetts Solicitors, Chairman
The many advantages of using a third party collection agency or law firm to recover debt have been well documented over the years, and although there are also some benefits to having an in-house collections team, more and more companies are using third parties today than ever before.
Although the benefits are widely known, an important question that you should be asking yourself is – how do you assess the effectiveness of your third party collection agency?
Regularly monitoring the job that they do goes a long way to ensuring that this method of collection is the right one for your business and that you’re spending your money wisely. In order to carry out this assessment, you’ll be looking to focus on two key areas : qualitative and quantitative KPIs.
Qualitative KPIs
In business, it’s of vital importance to maintain a solid working relationship with your clients, and being able to solve a debt issue without damaging a hard earned trade relationship between supplier and customer is so important. Of course, there will be instances where the relationship has soured to the point of no return, and your primary objective is simply to recover the money owed; but when a good trading relationship can sometimes take months of hard work to create you need to know that your third party collection agency is able to salvage, or even, benefit that relationship wherever possible.
Does your collection agency offer access to their services via an online platform? This allows for greater flexibility as to when you access their services, allowing you to take care of matters outside regular working hours, or get a document, or even cost summary, in a minute or two.
If they only offer direct access via telephone or in person then how responsive are they when you contact them?
Some third party agencies assign each of their clients to a case manager or paralegal, who is the main point of contact throughout the process. This has proven to be a far more effective way of working as they become familiar with your situation, they know your business and your policies on collection. Yet they should also be part of a close team, so others can help as need be.
Did you accidentally overpay a former employee?
You may also need to consider different tactics for different customers. Can you get advice on options? Some may need the urgency of the threat of Insolvency; others may just need the escalating cost of a Court claim. Yet others, only a third party phone call to ensure the right person is reminded to pay.
Consider all these factors in order to assess how effective your DCA or law firm is when it comes to quality of service.
Quantitative KPIs
While the quality KPIs can vary depending on what type of support you’re looking for in a collection agency, the quantitative KPI’s are relatively straight forward.
Look at hard figures, and the results are far easier to assess. You’re going to be looking at how long on average it takes for the agency to close a case. Are your customers responding to the methods used by your third-party collector? Are they quick to follow up on communications and deal with any issues? Or do they routinely allow issues to drag on over days or even weeks, without cause?
How many cases do they manage to close in any given time period? Most significantly, what is the success rate? How much is it costing you per case on average? As a business, you’re looking to maintain that balance between a high-quality service and cost effectiveness. Are they recovering your collection costs or commissions through the legal process, if that applies?
In the end, the way in which you assess the effectiveness of your collections agency will vary depending on the type of business you run, and your own priorities and circumstances. What is important is that you routinely run this assessment, and make sure that the third party collection agency is right for you, and delivers the results you expect.
Source: CICM – Chartered Institute of Credit Management
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Many of us have enjoyed the classic board game Monopoly, and we’ve most likely received the “Bank error in your favour, collect £200” card.
In real life though, it doesn’t quite work like that.
Overpayments can and do happen, but the recipient isn’t legally entitled to pocket the money, unlike the player in a game of Monopoly!
Did you accidentally overpay a former employee?
Overpayment of wages can happen for any number of reasons, from someone in payroll suffering a lapse of concentration, to a simple computer error. However, The Employment Rights Act 1996, which details circumstances where an employer can make deductions from an employees wages states that an employer can make a deduction from an employees wage “where the purpose of the deduction is the reimbursement of the employer in respect of (a) an overpayment of wages”, so you’re legally within your rights to reclaim any money that you may have overpaid an employee.
This leaves many employers wondering how they should approach such a scenario, as the need to recoup the money lost has to balance with not causing undue issues with your employee, especially as they were the innocent party in this situation.
There are a number of ways you can go about rectifying the error, some of which we’ll cover here today;
How Can I Reclaim an Overpayment?
The most obvious question of all when something like this happens, and there’s a quite simple set of steps you should take in the first instance.
Contact the employee involved, explain to them what has happened, let them know you’re intending to reclaim the money from their next wage and check to see if this would cause any financial difficulty for them. If the answer is that it would cause them an issue financially, then the next step would be arranging a repayment by instalment plan that both of you are happy with. If the employee indicates that there would be no financial issue then simply make the deduction from their next wage.
In many cases, it can be this simple.
How And When Can An Employer Recover Overpaid Wages?
As mentioned in the point above, in many cases it’s simply as straightforward as sitting down with the employee in question, making them aware of the situation and reclaiming the money either the next pay date in its entirety or organising to reclaim it in instalments.
Although the law states that you can make a deduction from an employees wage when an overpayment has been made, it does pay to not take the offensive on a matter such as this. Just because you can legally take payment back doesn’t mean you have carte blanche to deal with the issue as you see fit. For both good employee relations and to avoid any additional problems it’s always best to treat the employee fairly and with respect.
After all, this is an error that you made, not them.
What if I Realise I’ve Overpaid an Employee Years Later?
If the employee still works for you, then the previous points about reclaiming the money still apply. If you can prove that overpayment was made then you should contact the employee in question and follow the procedure already covered.
If the employee no longer works for you things can get a bit more difficult. You would look to try and reach out to the former employee and explain the situation, providing proof if you can.
It’s not always easy to reach someone who’s left your employment, and if you can’t find them,a debt recovery specialist will be able to assist in tracing the whereabouts of the former employee.
How do I Avoid Payroll Errors that Cause Overpayments?
The best way to avoid having to deal with overpayments is by not making them in the first place, and while that is certainly easier said than done, there are some steps that you can take to greatly reduce the chances of it happening.
The first is training. By training supervisors and payroll department employees to spot overpayment issues early you will save your company a lot of time and effort in the reclamation of payment.
Ensure that there is a procedure in place so that anyone who notices an overpayment knows exactly what they have to do, and who they have to report it to. Time is of the essence, and being able to stop an overpayment before it’s made is far more preferable to reclaiming it at a later date.
What Should be Included in a Letter Requesting the Return of the Overpayment?
We all know that raising the subject of an overpayment of salary can be a bit awkward at times, but the best way to go about it is by letter.
Sending a letter allows you to create a paper trail that backs up your demand for overpayment. It also acts as evidence that you have approached the situation with a fair hand, and that the employee in question has been given every opportunity to get involved in the process and raise any issues.
When contacting your employee on such a matter it’s generally considered proper practice to highlight certain points, which are as follows;
- The letter should inform the employee that an overpayment has been made in error, and should both state the amount that the overpayment totals, and the means by which the employer intends to reclaim the money.
- The letter should also provide the employee with an opportunity to contact the company if this method of reclamation is going to cause any financial or personal issues. As mentioned previously, it isn’t worth risking employee relations when taking the time to break repayment up into instalments can make all the difference.
Provide the employee with a set timeframe in which to contact you and request alternative arrangements, after which the initial reclamation method will be put in place, which usually means reclaiming the payment all at once from the employees next pay.
The letter should also include an opportunity for the employee to dispute the overpayment if they so wish.
In most cases, these situations are resolved without too much trouble. Occasionally an employee may require a few months to pay the money back, but it usually goes pretty smoothly.
As long as you approach the situation in a fair manner you’ll find that most employees are cooperative and will be easy to deal with.
There comes a time in the life of all businesses where they have to look at the possibility of developing a credit policy, and ask themselves if they are going to offer credit to other businesses.
The importance of this decision should not be underestimated, and it is not a choice to be taken lightly.
In particular industries, clients and other businesses will not take you seriously unless you offer some form of credit arrangement, while in others it’s perhaps not as common. Every business has to look into what their competitors are offering, and ask themselves if it’s something they believe will bring benefit to their operation.
One thing that applies across the board, however, is that there is a certain element of risk to your business whichever way you decide to go.
At the top of the list of factors to be considered is the effect on sales revenue. By offering a credit line to your customers, you’re allowing them to delay payment for the service or goods you have provided them.
In theory, this is beneficial to those customers and should help you to win more business. It isn’t all that beneficial to your financial situation short-term though and can have a pretty substantial effect on your bottom line if not managed correctly.
Providing credit can also encourage your customers to place larger orders with you if they know they won’t have to pay the entire cost up front. This is undoubtedly one of the major benefits of providing your customers with credit, and can result in a pretty substantial upturn in sales and also encourages larger businesses to work with you, which brings obvious benefits.
Offering credit also allows you to get creative with offers that you make available to your customers, such as discounts for paying cash, and discounts for quick repayment of any credit owed. Depending on the type of service you provide you can alter these offers to suit, and they can help you to win business from the competition, who may not be quite so creative on willing to provide a flexible approach.
One thing to remember though is that by offering your customers credit, you will possibly have to take on some debt of your own to help finance the transition. Being able to sell your products or services without payment being made immediately isn’t something that every business can do, especially those companies who are relatively new. If you think that taking on some debt to allow you to offer credit to your customers is something that will benefit your business in the long term then fantastic, but make sure to run the numbers before making that choice.
Another point to keep in mind is that offering credit will almost certainly bring with it the chance that you’ll encounter bad debts.
Most customers don’t go into an agreement with you knowing that they won’t be able to repay the credit you give them, but the truth is that sometimes things can go wrong in business.
When this happens, you’ll have to decide if you’re going to simply write it off as one of the downfalls of operating in this manner, or if you’re going to have plans in place to recover the money owed.
In many instances, you can write off a portion of your bad debts and still come out with a positive bottom line, but the truth is that recovering money that is owed doesn’t have to be a drain on your resources both emotionally and as far as time goes. There are reputable debt recovery companies out there who can assist you in this matter, and who can help advise you when providing a customer with credit goes wrong.
Deciding to provide credit is an important choice for any business, but if you do your due diligence and weigh up the pros and cons, you should be able to determine if it’s a road you want to go down.
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