If you are in business long enough, the need for a debt collector will become inevitable. When it is time to collect on unpaid debts, you can eithertry to handle everything yourself or outsource your collection efforts to a third party. A third-party debt collector is never cost effective…or is it? You may be surprised to know that outsourcing can be more cost-effective for a number of reasons. 

Save Money on Personnel

Many people hesitate to use a third party because they believe that doing so will not be cost effective. If you are one of them, you may be surprised to know that outsourcing can actually help you save money because you will not need to hire someone to take care of collections for you. Not only can you save on the cost of salary, but you could also realise other savings by:  

Cost-Effective Service

There also seems to be some misconception about the cost of using a third party such as a debt recovery solicitor. Most solicitors collecting debt should offer a clear fixed fee service. At Lovetts, we have also sought to utilise legislation and contractual clauses to ensure these fixed costs plus our clients in-house credit control costs, are paid by debtors. It is important that companies do not lose money when they seek to collect money that is rightfully due to them.  

Saves Time

By far, the biggest benefit to using a third-party debt collector is the fact that it saves you time. When you save time, you also save money because: 

Positive Results

When a third-party is a specialist in debt collection, you can be sure your collections are in very capable hands. Like us they can put the experience and knowledge they have gained over the years to good use, ensuring the amount you recover remains high and that there is little debt left over for you to write off. It is also extremely important that the debt collection service more than pays for itself in the long run through the recovery of your costs. Too much uncollected debt can essentially make or break a business. Don’t leave your debt collections to chance-instead, consider outsourcing this function to a specialist debt collector. You’ll rest easy knowing you are collecting as much unpaid debt as possible in a very cost-effective, efficient manner. If you would like to know more about how you can recover your costs, do not hesitate to contact us.

Is chasing late payments getting in the way of your other business priorities? Our handy free guide will provide you with 10 tips and insights to help you reduce those issues.  DOWNLOAD FREE 

The month of December is the most pivotal month of the year for many companies. With many companies closing their doors between Christmas and New Year’s Day, year-end payments are often not processed until mid to late January. This can create a major strain on businesses struggling to maintain sufficient cash flow to cover expenses that must be paid by the end of the fiscal year. Below is a look at the challenges facing businesses in December and five steps to help increase your cash flow at Christmas. 

The Importance of Healthy Cash Flow During the Christmas Period 

December is full of extra expenses that companies do not have to face during the other months of the year. In addition to standard payroll, businesses face a host of other expenses that can strain a company’s finances. Below are three key reasons why companies must ensure that they have a healthy cash flow during the Christmas period:  

Steps to Optimizing Your Cash Flow at Christmas 

Optimising your cash flow is a process that cannot be accomplished in one day. You need an early start and a well-orchestrated plan of attack. Below are five steps to help your business successfully collect payments prior to the Christmas period.  

1. Begin to follow up on outstanding receivables as early as possible

Do not wait until the week before Christmas to swing into action, or your requests for overdue payments may not receive a response. By mid-December, many people have begun their holiday vacations and do not resume business until after the start of the new year. Initiating collection of outstanding payments as soon as possible gives you a jump on other companies collecting from your clients and gives your customers plenty of time to make payment arrangements.   

2. Proactively target customers with a history of delayed payments 

Do not be afraid to be proactive – especially with clients who tend to be late remitting payments. Most businesses have a small handful of customers who are responsible for the majority of their outstanding payments. Failure to collect from these customers prior to Christmas can delay your receipt of payment until the second half of January or later.   

3. Offer incentives to customers who pay in advance

Customers with perfect payment records are not the norm, yet are often taken for granted by businesses. Christmas time is the perfect time to show your appreciation to customers who pay upon placement of their order. Extending discounts to customers who remit payment in full when they confirm their orders is beneficial to your company because cash flow increases. This strategy is also advantageous for the customer, who is able to enjoy year-end savings.   

4. Send a letter before action by email

Letters Before Action (LBAs) are a cost-effective way to prompt customers to remit payment. LBAs sent by email tend to produce better results than LBAs sent by post because customers receive them faster. Additionally, LBAs sent by email tend to be paid faster compared to those sent by post. Customers are rarely offended by the receipt of an LBA and we have found that roughly 84% of customers pay their debts upon receipt of an LBA. 

5. Seek the guidance of an experienced debt recovery specialist

The best way to approach debt collection is to enlist the support of a specialist debt recovery firm. A trusted firm will help you manage your receivables from start to finish, helping you to eliminate cash flow concerns.   

Debt Recovery Clauses
for Terms & Conditions

Costs recovery clauses to assure a cost free debt recovery service

Download Now – it’s Free! 

At Lovetts we’ve been awarded the Law Society’s top accolade of Lexcel Accreditation for our personal and business debt recovery services. The status was conferred by official inspector, Roger Newman, who wrote in his Annual Maintenance Visit report that we had achieved the “very rare” distinction of evidencing zero non-compliance with professional standards. The inspection focused on seven key practice areas including financial management, people management, risk management and client care.

Among other things, Mr Newman praised the client-centered ethos within our organisation, saying: “The company remains people-focused and client-focused through its defined People First strategy“.”The company values continue to underpin good business practice and good customer service throughout the organisation“. He added. The inspection took place against the backdrop of considerable growth and the recent appointment of Michael Higgins as our Managing Director. Following the report’s publication, Michael Higgins said: “Of course I’m pleased, but I have to say that I’m not greatly surprised by the result.” “I witness the high ability and professionalism of our staff every working day, so although this was an inspection it was essentially business as usual.” The Law Society’s high praise and formal Lexcel Accreditation mean we maintain our position as one of the country’s top business debt recovery solicitors. 

See Latest Posts

Imagine this situation: a sales person has skilfully closed a high-value deal, only to allow the customer to dictate payment terms at the last minute. Oooooops…Believe it or not, this can happen quite easily if sales people fail to state payment terms at the critical moment the deal is struck, enabling the other party to do so instead… It’s all to do with the ‘last shot wins rule’, which says the party that had the last say in negotiations ultimately defines the terms. As a result, if the deal does eventually result in a payment dispute, then a Court of Law will look at the nature of the preceding correspondence to help it infer the correct terms. 

This kind of payment dispute often leaves credit controllers to pick up the pieces, costing organisations time and money that could be better spent elsewhere. And who needs that kind of hassle? So what can you do to help protect yourself against a dispute related to payment terms? That’s right, as the title of this blog says: you should aim to include payment terms at the end of all your correspondence. 

This fail-safe strategy isn’t a big deal at all… In fact, many companies simply include full payment terms in their email footers as a matter of course to guard against payment disputes arising. It’s just one small tip that could save you problems with payment disputes in the future. So why not use it…? Nobody will think you are being unreasonable – it’s just good practice in today’s fast-paced working environment. 

Debt Collection Clauses
for Terms & Conditions

Costs recovery clauses to assure a cost free
debt collection service 

Download Now – it’s Free! 

Recovering overpayments to former employees can be an easy process that need not result in large legal costs. To illustrate the options a company may have, let us consider a recent case. 

The Parties

In this case, a former employee of an award-winning outsourcing company based in London was overpaid in excess of £8,000. Unfortunately, the company did not discover the overpayment until after the employee had already left their employment. In preparing its annual accounts, the company became aware that the former employee had been overpaid and became concerned that the money would not be recovered. The company consulted Lovetts to determine its legal options to recover the salary overpayment to its former employee. 

The Challenge

Lovetts informed the company that they were entitled to recover the overpayment from the former employee. However, the company was facing a former employee that was refusing to engage with no certainty as to whether they had the current address for the former employee. 

The Solution

Lovetts were able to trace and confirm the former employee still lived at the address the company had on record. Accordingly, Lovetts sent a letter before action requesting the return of the salary overpayment. The former employee failed to engage with Lovetts and did not respond to the Letter Before Action. As a result, Lovetts promptly filed a claim for the amount of the overpayment plus legal costs and interests. The former employee filed a defence alleging that she had never received correspondence from her former employer or Lovetts notifying her of the overpayment and that she was completely unaware that she had received an overpayment. The former employee further stated that because it was her employer’s mistake, she was not liable to return the overpayment in any event. Lovetts were able to respond and present a clear paper trail which included all previous demands from the company to the former employee. It also clearly set out all payroll records showing the overpayment that had been made and received by the former employee. The Court accepted the evidence showed an overpayment and rejected the defence that former employee was not required to return the overpayment due to the Company making a mistake. 

The Outcome

The Court ordered the former employee to return the overpayment of salary and to also make payment of the legal costs and interest. The former employee subsequently made payment of the Judgment amount within 14 days of the hearing and avoided enforcement action.  

Having overpayment issues?
If the overpayment has been made to a current employee, you have certain rights under the Employment Rights Act 1996 to deduct the overpayment from the next payroll process. However, what happens if the overpayment relates to a former employee? The first step is to write to the former employee requesting payment of the overpaid sum. If you are not sure what to include in your letter, please download our free guide which provides you with template letters.

Overpayment to employees, in particular former employees, is more common than you think. It can range from a simple payroll error such as miscalculating a payment of wages and or bonus/commission to seeking recovery of holiday pay, benefits such as a car allowance or train season ticket and even training fees from a former employee.

If the overpayment has been made to a current employee, you have certain rights under the Employment Rights Act 1996 to deduct the overpayment from the next payroll process. However, what happens if the overpayment relates to a former employee? The first step is to write to the former employee requesting payment of the overpaid sum. If you are not sure what to include in your letter, please download our free guide which provides you with template letters.

Sometimes a debtor will change address without notifying creditors, leaving those creditors feeling pretty helpless as far as debt recovery goes. 

As a creditor it might seem like they have gone for good, but remember: nobody really disappears off the face of the earth.

So what can you do about it? Well, under the Civil Procedure Rules there ARE debt recovery measures you can take in order to improve your chances of seeing your money again. Just take a look…

Your Legal Position

As somebody suffering from disappearing debtor syndrome you can still take legal action for debt collection. All you need to show is that you have taken reasonable steps to find out the debtor’s current address.

If you don’t manage to discover the address, then it’s still not over… That’s because you can still issue debt collection proceedings by serving documents on the debtor’s last known address.

However, in such cases eventual debt recovery enforcement can be problematic. Therefore you should definitely take a long-term view about recouping the money owed.

Nevertheless, providing you obtain a County Court Judgment against the debtor, you can place a black mark on their credit record that could remain for six years.

In some cases this black mark will alert the debtor to your grievance immediately, providing they keep an eye on their credit score. If they don’t, the outstanding debt’s urgency may become apparent to the debtor the next time they apply for credit. If this happens you might be surprised by the results. Indeed, you could find the outstanding sum is paid relatively swiftly in order to have the Judgment recorded as having been paid and therefore improving their credit rating

Alternative Solution

Did you know? You can always use specialist trace agents to track down your disappearing debtor in order to ensure a successful debt recovery. Many of these work on a ‘no trace – no fee’ basis, saving you from exposure to further financial risk.

At Lovetts we have found trace agents to be very effective in tracking down disappearing debtors. Providing they ascertain the debtor’s current address you can avoid the course of action outlined above and follow the more usual debt recovery process. 

When you’re in business a bounced cheque or direct debit can feel like a major blow. However, it’s not all bad news… That’s because the payment failure represents solid evidence, not only that you are owed money, but also how much.

In the eyes of the law, a cheque is a promise to pay and that promise to pay must be honoured because a cheque is deemed to be the same as a cash payment. But what some people don’t know is that this principle also applies to direct debit mandates. Indeed, the rule for cheques was extended to direct debits in the case of Esso Petroleum Co Ltd v Milton back in 1997. They decided that a cheque and a direct debit mandate should be treated the same, namely that it was a promise to pay that should be honoured. 

Now here’s the really important bit… The failed transaction places you, as a creditor, in a very strong position when launching proceedings for debt collection. After all, it’s evidence that the amount is owed and isn’t disputed. What’s more, the bounced cheque or failed direct debit is likely to prevent the debtor using a counterclaim to offset the money owed. That’s because, once again, the payment-gone-bad demonstrates the debtor’s earlier intention to pay the full amount. A counterclaim cannot be used to off set against the amount of the bounced payment. The debtor must honour their promise and make payment of the bounced payment amount regardless of any dispute or counterclaim. 

As a claimant you should note that there ARE defences available to a debtor in the case of a bounced cheque or failed direct debit, but these are extremely limited. In fact, a defence will only succeed if the debtor can show the cheque or direct debit mandate was obtained through fraud, duress, or an illegal contract. When your debt collection process requires you to issue Court proceedings for the outstanding debt, you should always plead the bounced payment as well as the outstanding invoices. Just make sure you have all the relevant details to submit as part of your claim. 

These comprise of:

That really is all you need in terms of evidence. So next time you suffer a bounced cheque or failed direct debt, just think: it could be the debt collection smoking gun that proves exactly what you’re owed.

Case Summary

Esso Petroleum Co Ltd v Milton

[1997] EWCA Civ 927

This was a case before Lord Justice Simon Brown, Lord Justice Thorpe and Sir John Balcombe in the Court of Appeal.

An application had been made by Esso to appeal the decision of His Honour Judge Thompson who had previously refused Summary Judgment against the defendant, Mr Howard James Milton for the sum of £167,886. 

The defendant was the licensee of two of Esso’s service stations, which he occupied and managed. It was a condition of the licence that he bought all his fuel from Esso and that he paid for it by direct debit. 

In 1996, Esso increased the defendant’s rent for these service stations. The defendant objected to the increase and deemed his relationship with Esso over. Nevertheless, between 1st and 9th April 1996, the defendant received 12 fuel deliveries to his service stations. Routinely such deliveries were paid for by direct debit in accordance with a direct debit mandate given by the defendant. However, due to the defendant cancelling the direct debit mandate on 11th April 2016, Esso were unable to take payments for the fuel. 

When Esso issued Court proceedings for the outstanding sum due to them, the defendant counterclaimed for damages for a repudiatory breach of contract. The defendant sought to set off this sum against the sum claimed by Esso. His case was that he should be entitled to set off his claim because a direct debit mandate was not the same as a cheque. It was submitted that with a direct debit, it is the creditor that withdraws payment rather than a debtor giving payment to a creditor. 

This argument was rejected by Lord Justice Thorpe and Sir John Balcombe who found in favour of Esso. It was stated that where goods were effectively sold for cash, the seller should have the security that cash brought regardless of what banking mechanisms the parties choose to transfer cash from one account to another. 

Twenty years ago prior to the case, payment would probably have been made by cheque. Theoretically the tanker driver could have demanded a signed cheque upon delivery of the fuel. However, Esso’s daily petrol sales varied between £9 and £20 million and the modern mechanism for handling what were effectively cash sales on that scale was the direct debit system. Accordingly, a seller accepting cash transferred by direct debit should be in no worse a position that if it had accepted a cheque on delivery.

In light of this, the defendant could not dishonour his promise of payment and could not set off Esso’s claim with his counterclaim. Judgment was awarded to Esso.     

Is chasing late payments getting in the way of your other business priorities? Get in touch today at [email protected] to see how Lovetts Solicitors, the debt recovery experts can assist.

Debtors are becoming more sophisticated in avoiding enforcement of a debt. This is partly due to the exchange of information through some online forums. However, there is always a solution to every problem. There are many enforcement options, one of them being a Third Party Debt Order, formerly known as a Garnishee Order. Here, we focus on the pros & cons and other relevant details of Third Party Debt Order. 

A Third Party Debt Order is basically a method of legally enforcing a County Court Judgment (CCJ) by obtaining payment from a third party that owes money to your debtor. This approach is often used by creditors who know the debtor’s bank account details or they are aware of a large contract the debtor may have. 

The major benefit of using a Third Party Debt Order to enforce your debt is that you retain an element of surprise. The debtor will not know when you make the application and they will not be notified until after you have served the third party with the Court Order. By the time the debtor is made aware of your application and Court Order, their bank account or funds held by a third party have already been frozen. 

The problem with a Third Party Debt Order is that it can be a gamble. If the debtor’s bank account is held jointly with another person that does not owe you money, your application will be rejected. Even if the bank account is in the debtor’s sole name, the order will be ineffective if the account is not in credit on the date you serve the order. Likewise, if the sums held by the third party, other than a bank or building society, are not due to your debtor on the date you serve the order, the order will also be ineffective. For example, if the invoices issued by your debtor to a third party are still within the credit period and not payable yet, the sums will not be frozen and paid to you.

A Third Party Debt Order will not accelerate the time for payment because a Judgment creditor cannot, by means of a Third Party Debt Order, stand in a better position than the Judgment debtor did with the third party. 

In light of the above, the date you serve the Third Party Debt Order will be crucial to increasing your chances of success. If you believe a Third Party Debt Order could work for you or you would at least like to try and enforce a debt this way, we have set out the process below for guidance. However, we would always recommend using or at least obtaining advice from a Solicitor before taking this action. 

Third Party Debt Order Procedure:

  1. Obtain a County Court Judgment (CCJ)
  2. Complete Court form N349 and send the application to Court with a Court fee of £119.00. Note – It may be essential to serve the Order on a particular date when you believe funds will be available. If that is the case, ensure you notify the Court that you wish to serve the Order yourself.
  3. Court will issue an Interim Order with a hearing date.
  4. Serve the Order on the Third Party. Once served, file a certificate of service with the Court.
  5. The Third Party will write to you disclosing the amount available/frozen. If it is a bank, they will also disclose any other bank accounts the debtor may have. Send this correspondence to the Court.
  6. Prepare for and attend the hearing listed at Court.
  7. Obtain the Final Order and serve on the third party (if not done so by the Court) and await for the funds to be sent to you.

Check out the Unlimited Legal Advice Service on your outstanding debt disputes:

UNLIMITED LEGAL ADVICE

Access solicitor’s advice on all contractual & debt collection disputes for one low fixed annual fee.

Retention of Title is a clause found in a variety of business terms and conditions. It’s imperative to understand what it means as it can affect the business relationship considerably if payment is not made by the customer.

What the Clause Means

A retention of title (ROT) is a provision within a contract that essentially means that the customer does not own any goods that have been delivered to them until payment is made in full.

If for any reason the customer defaults on the payment, a company has the ability to enforce the clause by recovering the goods directly from the customer. Particularly if the goods are of value and have the ability to be sold again, it’s a good idea for a company to include a retention of title clause within a business contract.

Further, because of the nature of the clause, there should also be a comment about the seller having the right to enter the premises of the buyer in order to repossess the goods. This will prevent any kind of trespassing charge from occurring.

The business contract can be written in such a way that it makes it easy for the company to handle the repossession. This includes such things as:

Handling Retention of Title

When you are a seller and you decide to add a retention of title clause within a business agreement, you need to make sure you handle everything appropriately in the event that a customer fails to pay.

The detail in which you write the retention of title is of the utmost importance. For example, if you do not identify that the buyer provides you with the right to enter their premises, you cannot force entry into their premises. If they refuse your entry, you would be required to obtain a court order, which would involve the customer having to “deliver up” the goods. This simply means returning the goods to you.

Other problems can arise when enforcing the retention especially if the customer sells your goods or they attach the goods to something else, making it difficult to remove or identify. Essentially, the moment the goods leave your hands, it can be difficult to enforce what the customer does with them. If they store the goods separately or mark the goods as you identify within the clause, it will be easy to obtain. However, should they do anything else with them, it becomes difficult to enforce.

There are various provisions that you must deal with as well. For example, should you issue proceedings for the invoice value or other price, you then lose the right to reclaim goods using the retention of title clause passed the state. In some instances, payment of the price is a better alternative than the return of goods, particularly if you are unable to resell those goods at a similar price.

There is also the “all monies clause” allows you to reserve title and all of goods supplied to the buyer until they are up to date on all of their outstanding invoices. This is beneficial because it eliminates the need to relate specific goods at the premises of the buyer with specific invoices that are unpaid.

In the end, a retention of title for cash or goods can be beneficial, although you need to make sure that the contract is written in such a way that you protect all of your monetary interests.

Find out more about debt collection law by visiting the legal proceedings section of our website.