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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As many of you will no doubt already be aware, the Ministry of Justice has released a new Pre-Action Protocol for Debt Claims that comes into effect on October 1st, 2017.
Whenever these kinds of changes are made it’s natural to have questions, and we’re going to do our best to answer some of them for you today;
Who does this new protocol apply to?
This protocol applies to all claims by a business for payment of a debt by an individual. This could be individual borrowers, tenants, trustees and so forth. Basically, any individual who owes a non-business to business debt is covered by the new rules.
The only instance where this protocol will apply to a business to business debt is in a situation where the debtor is a sole trader. If the debt is owed by a company or a partnership then the new protocol wouldn’t apply.
Why has the new protocol been introduced?
According to the Government, the aims of this new procedure are to encourage early engagement and communications between both parties, and to increase the chances of the issue being resolved without the need for court proceedings. This can include a reasonable repayment plan or use of an Alternative Dispute Resolution procedure.
Another key reason for the introduction of this new procedure is to encourage both parties to act in a reasonable manner and to try to avoid the running up of costs which aren’t reasonable in relation to the sums owed.
What can I do to be prepared for these changes?
Perhaps the most important question of all.
The first port of call should be to educate yourself on the changes, which means making sure you have access to the required information. This protocol will require a bit more information to be included in the Letter Before Claim, so it’s important that you are familiar with this information before the date of implementation, and that you make any necessary changes to your own systems before that date.
You should also keep your staff fully informed of any changes that they may have to make to their own records and practices. Getting ahead of this and making sure they’re fully briefed will help to avoid any transitional issues later on down the line.
You should consider asking yourself if your current credit policies will prove worthwhile after the changes come into effect. Will it be cost-effective to consider legal action in cases where the debtor is a sole trader or individual? In instances where you are offering credit to customers who fall under the umbrella of this new protocol, it may be worth making changes to your terms and conditions of issue and altering the requirements that those customers have to meet. This will help reduce the chances of debt recovery.
And finally, you have to start separating sole traders and individuals from companies and partnerships on your account records. This will assist you in applying the new protocol to the correct clients if & when the time comes to pursue an outstanding debt.
Another important step that you should take is speaking to your debt recovery solicitor.
In most cases, a quality debt recovery solicitor will already be taking the required steps to implement this new protocol smoothly into their procedures, but you should certainly double check that this is the case.
If the correct steps are taken before the October 1st implementation date you shouldn’t face any real issues. It’s just a case of making sure you’re ready.
If you consider yourself the kind of business that dreads having to deal with customers or clients who have an outstanding account or an unpaid bill that needs collecting, trust me, you’re not alone.
No one likes to risk destroying customer goodwill by having to demand payment, but in many cases, there is no other option.
Before you find yourself having to go down that route though, there are steps you can take beforehand to try and avoid the situation escalating to such a level.
Ensuring that payment due by dates and terms are clear, and also indicating any interest that will be applicable if payment isn’t made by the date agreed will go a long way to helping this part of your business run a lot smoother.
Even taking these steps can’t guarantee that you won’t run into issues, and when that happens you’ll want to take an approach that is both firm, yet doesn’t run the risk of souring relations with a valued client or customer.
Step 1 – Keep It Friendly & Informal
The first step should be to issue a short, friendly reminder along with another copy of the invoice. Many times an unpaid bill can be a result of the client simply forgetting. We all know that running a business is time-consuming, and it’s easy to forget what needs paying on what date. Many times this will result in an apology and payment being made, which is the ideal outcome.
If payment isn’t made within a few days of the letter being delivered, a more direct approach may be required.
Step 2 – Be More Direct
Your second letter should be a bit more formal, and with directness replacing the friendly tone of the first notice you sent them. At this point, the failure to pay what is owed can’t be put down to forgetfulness.
Step 3 – Introduce The Threat Of Legal Action
If payment still isn’t forthcoming, you’re going to have to get tougher, 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.
Step 4 – Issue A Final Notice
If the threat of legal action hasn’t prompted payment to be made, then you issue a final notice demanding payment and setting a date whereby legal proceedings will be launched against them.
One piece of advice that will prove valuable is to not lose your composure when writing these letters. It won’t do you any good to make empty threats, and in many cases, these threats can be used against you by the client.
Keep it professional, and to the point.
No one enjoys going through this procedure when dealing with a client who hasn’t paid what is owed. It can be emotionally draining, and also takes valuable time away from your business and other customers.
Usually, the best option is going directly to a reputable debt collection company who can take the stress and hassle away from you. They also have far more experience in these matters and know how to approach such clients in a manner that will see a speedy and satisfying result.
All you can do is try to be as fair and as reasonable as possible.
Are you claiming debts from individuals or sole traders?
More about the Pre-Action Protocol for Debt Claims
Let’s be honest; no one really enjoys invoicing. It’s monotonous and takes up time that you could be spending on other aspects of your business.
But, it’s a necessity. And if you have to do it, you’d better do it correctly, as it’ll save you headaches later on down the line.
In many instances, a business chasing a client who isn’t returning calls, or even having to go down the route of issuing a late payment demand could have avoided the situation by taking a little more time on their invoicing procedure.
This checklist will provide you with a solid base to ensure that your invoicing goes as smoothly as possible.
Check you’ve included all of the relevant information on your invoice
You’d be surprised at the number of businesses that put very little thought into the information they provide on their invoices.
First of all, make sure that the word “invoice” is clearly displayed on the documentation that you send them. That may sound pretty self-explanatory, but it can be easy to get so caught up in the numbers and payment terms that you don’t include the word on the document.
Double check your own company name, address and contact information, and be sure to issue a unique reference number on every invoice you send out.
Clearly describe the services or goods that you’re invoicing the client for, as well as displaying the date, the amount owed and the date payment has to be made by.
Keep on top of the situation
Don’t just create an invoice, send it out and then forget about it until the day of expected payment. If you’ve forgotten about it, there’s a good chance your client may have as well.
Send out the invoice, and then follow up five or so working days before the due date with a nice little email reminding your client that payment is almost due.
Sometimes a friendly reminder beforehand allows for a bit of planning on your client’s end. Let’s face it, people get busy, and sometimes it’s easy to lose track of the days or get swamped with work.
Create payment terms, and stick to them
Your invoice should include your payment terms written clearly and in an easy to understand way. When you indicate a specific number of days before payment becomes overdue be sure to specify if you mean business days, and don’t be afraid to be firm when it comes to enforcing the terms of payment.
Politeness and patience can go a long way when dealing with customers and clients, but there will be occasions where you have to be firm and to the point.
Sometimes, no matter how much you put into creating a perfect invoice, you’ll come across a customer who simply doesn’t want to pay.
When that happens, you could be left with no other option than legal recourse.
Did you accidentally overpay a former employee?
Most companies simply don’t have the resources or time to chase overdue payments, and it’s at this stage that a reputable debt collection company can be worth their weight in gold.
Are you claiming debts from individuals or sole traders?
Watch the video!
More about the Pre-Action Protocol for Debt Claims
As any company knows, late payments can have a devastating effect on operational functions. Whilst businesses must receive payment in full in order to remain profitable, they must also receive the funds in a timely manner to ensure that they can continue to operate.
Business debt collection can be complicated. In addition to implementing the relevant late payment laws, companies must find a way to encourage clients to pay their debts in full, rather than accepting a partial or token payment.
However, there are methods which can enable you to recover your business debts satisfactorily. A winding up petition, for example, requests that the courts close a business if it cannot pay its debts.
Providing you are owed £750 or more and the company is genuinely unable to make the payments, a winding up petition can result in the company being closed, its assets being sold and the subsequent money can then be passed on to creditors.
How Else Can A Business Recover Debts?
If the business in question is simply refusing to pay an invoice, rather than being unable to pay their debts, then a winding up petition won’t be a suitable solution. Instead, you may need to consider an alternative form of debt recovery.
A letter before action or a solicitor’s letter could be used to show your intention to take the matter to court unless it is resolved. Whilst you may not want to resort to litigation, taking a strong stance against late payments could ensure that the debt is paid quickly.
If the dispute is on-going, you may consider referring the matter to an arbitrator where a neutral third party will make a decision about the matter. There will need to be an arbitration clause in the contract or the parties will need to agree to arbitrate. If the matter is resolved via arbitration, an award will be made and the client must adhere to the ruling. As a form of alternative dispute resolution, arbitration can be used instead of going to court and it’s often a quicker and cheaper way to recover your debts.
Enforcing Debt Recovery
UK and international debt recovery can be time-consuming for businesses. With various debt collection options available, it may be difficult to determine which method of debt resolution is the most appropriate in any given circumstance.
Instead of increasing organisational costs by managing these issues in-house, you may want to consider accessing professional help. By outsourcing your debt recovery, you can ensure that clients adhere to their contractual terms and that your business doesn’t suffer as a result of late payments and debts.
While no business can benefit from late payments, a delay in incoming revenue can be disastrous for small or medium sized companies. With many SMEs relying on continuous cashflow, unpaid debts can affect the operation of the business as a whole.
As many SMEs don’t have the capacity to employ in-house debt recovery experts, they can find it difficult to resolve the issue of late payments. As a result, their business can face financing problems and may even be forced to suspend or cease trading.
Getting Expert Help
Fortunately, there is help available for SMEs. Rather than attempting to process debt collection in-house, they can access professional assistance by outsourcing.
With various dispute resolution options available to SMEs, professional debt experts can ensure that businesses are able to recover their debts swiftly. Whether a letter before action is required or a winding up petition needs to be issued, using an experienced debt recovery firm can ensure that the matter is handled appropriately and effectively.
Minimising Downtime
If on-going late payments are impeding your cashflow and resulting in operational delays, it’s essential to obtain payment quickly. By referring the matter to debt recovery solicitors, you may find that the debtor responds more quickly to your demands.
A solicitor’s letter, for example, can be far more effective at motivating a debtor to pay their outstanding bills, than a standard business letter or invoice reminder.
Reducing Costs
Unfortunately, SMEs without experience in debt recovery may think taking a client to court is the only option to recover their funds. However, this can be an expensive and acrimonious process.
Experienced debt collection professionals will identify alternative solutions which can help you to avoid commercial litigation. Rather than engaging in a costly and time-consuming court battle, you can use debt recovery services to resolve the problem far more quickly and with less impact on your business functions.
Building an in-house debt recovery team can be a costly and unnecessary process for many businesses. Rather than add to operational costs, why not employ the services of experienced UK and international debt recovery solicitors as and when you need them? This can reduce costs and resolve the issue of late payments, while enabling your business to run efficiently and profitably.
How can I claim late payment interest, compensation and costs? Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
Commercial disputes can prove costly for all types of businesses. Whether you operate as a sole trader, an SME or as a multinational corporation, resolving disputes quickly is key to maintaining good cashflow and the ongoing success of the business. Whilst disputes can arise over any type of business transaction, issues relating to goods or services supplied commonly arise when you start chasing your client or customer for outstanding payments.
In such cases, it’s essential that the dispute is resolved quickly. If payment remains outstanding over a significant period of time or the dispute escalates and creates bad blood between you and your customer, your business could suffer catastrophic harm. SMEs, in particular, can struggle to operate if regular late payments occur or if incoming funds aren’t received on time.
Is court really the right option?
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.
Alternative Dispute Resolution for businesses
Fortunately, going to court isn’t the only way to resolve a commercial disagreement. Alternative dispute resolution (ADR) provides a range of methods when it comes to commercial litigation and debt recovery.
Negotiation, mediation and conciliation allow the parties to come together and find a solution to the issue, often with the use of an impartial person to manage the meetings. Mediation has a high success rate. A skilled mediator can often help the parties find a solution even when the parties themselves initially felt there was no chance. However, if this doesn’t seem like a viable way to resolve potentially acrimonious disputes, the options of arbitration or adjudication could provide an ideal way for the issue to be dealt with swiftly if the terms of your contract allow such options.
How can I claim late payment interest, compensation and costs?
With court being seen as a last resort, ADR provides a cost-effective way for businesses to resolve disputes. As less contentious forms of dispute resolution, negotiation, mediation or conciliation may even enable you to foster an on-going business relationship with the client.
If you need help enforcing late payment law or you require help with UK and international debt recovery, don’t head straight for the court system. Using ADR could help you to resolve your disputes efficiently and effectively, whilst reducing your business costs.
10 Tips for Effective Debt Collection:
A Free Guide
Recruitment agencies can suffer from the actions of those clients who try to avoid paying their invoices on-time or at all. Here are four factors you may experience.
1. Weekly timesheets
Temporary or contract workers who are assigned to jobs by your agency are required to submit timesheets showing the number of hours worked so that you can calculate the pay they are owed each week. But a number of problems can arise with timesheets:
- The employer’s representative may not sign the timesheet → if you receive an unsigned timesheet take additional steps to validate the hours by emailing the customer
- The number of hours claimed may be incorrect → ensure your Terms & Conditions (T&C’s) make it clear that hours recorded on the timesheet will be deemed correct
- The performance of the worker may be deemed to be unacceptable → ensure your T&C’s make it clear that you are acting as an agent, offer no guarantees as to the performance of the worker and set out the procedure for your customer if they are dissatisfied with the work.
In all of these circumstances the employer may try to get out of paying the agency. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
2. Dispute over the job role
In some cases, an employer may take on a worker for a permanent role for which they were originally not put forward. This can mean that the hourly rate due to the employee may be higher than that paid for the original role.
In effect, the employer is getting a more expensive contractor than they paid for. Although the employee won’t be out of pocket, your agency could be → ensure remuneration is clearly defined in the T&C’s for the purposes of calculating the introduction fee.
3. Dispute over payment for a temp to permanent appointment
There may be occasions when you supply a temporary or contract worker to a company for a set period. On conclusion of that period the employer decides to make that person a permanent employee. In these circumstances it is usual for the employer to pay the agency a finder’s fee and this should be included in the original contractual agreement → ensure the T&C’s set out the Transfer Fees payable when a candidate goes from temporary to permanent and define the qualifying period for payment of a fee when a temporary worker is supplied.
However, some unscrupulous employers may seek to take on temporary staff permanently without telling the agency, thus avoiding the fee.
4. Disputes concerning the original finder of an employee
Sometimes disputes arise because the employer has found the successful applicant via more than one channel. In these circumstances, the employer may refuse to pay the agency a finder’s fee and will say that they found the staff member through an alternative source → ensure the date on which a candidate is first introduced to the customer is documented in case a dispute arises.
5. How a professional debt recovery firm can help
If your recruitment agency has suffered from any of the above situations and you’ve been unable to recover the money you are due, you should speak to a solicitor who specialises in debt recovery without delay. Through a process of letters and telephone calls, an experienced solicitor uses contractual law to ensure that you receive the money you are owed in full.
Collecting payment from clients can become problematic, even for the most financially wise companies. A client could simply refuse to pay, or they might take an unfair advantage of the friendly relationship you have built with them. Either way, it can be difficult to force the payment with a fear of ruining your relationship or losing their custom. However, outsourcing your debt recovery can be a solution. Here are our top three reasons why you should seek assistance and top advice from debt recovery solicitors’ specialists.
1. Time is of the essence
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. Your time is better spent on providing a brilliant service to your customers, so leave the payment chasing to a debt collection specialist.
2. Cost-effective
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. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
3. Expertise
Debt collection solicitors have the necessary skills and expertise required to maximise the collection of outstanding debts. When you outsource your debt recovery needs, you will be offered a tailored service specific to you and your business’ needs. You will also be receiving a service from people who have vast experience in the field, so you can feel confident in their ability.
Seeking the assistance of a debt recovery specialist is efficient, stress-free, cost-effective and beneficial rather than trying to pursue debtors yourself.
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