When you have issued a claim and the defendant defends your debt, you can either settle the matter or go to a hearing for the Court to resolve the dispute. Before reaching a hearing at the Court, each case has to be allotted to a “track”. A track represents a process your case has to go through before you get to a hearing.

There are three types of tracks – small claims, fast track, and multi-track. If you are wondering what track your case will be allocated to, here are the differences listed below.

Small Claims

If you have a case where the debt is below £10,000 in England and Wales, it will most likely belong to a small claims track. These types of claims are usually much simpler to deal with, and reaching a hearing is usually within the first 6 months. Courts can attempt to settle the debt by mediation, often done over the phone. This service is free of charge. If that doesn’t work and the debt is still not settled, the next step is the hearing. A mutual exchange of the witness statements with the supporting evidence should occur at least 2 weeks before the hearing. The hearing usually lasts half a day. When it comes to small claims track, no costs are awarded to the successful party except the court fees. 

Fast Track / Multi Track

Fast Track is reserved for claims between £10,000-£25,000. The hearing can only last for 1 day, and usually, it takes up to a year to reach it. Multi Track is for claims that surpass £25,000. Usually, more than 1 day is allowed for a hearing, but depending on the complexity of the whole case, it can take anywhere between 1 and 2 years to reach a hearing. 

The Courts generally encourage mediation, but opposed to the small claims track, here both parties share the costs and they mutually settle for a venue and a mediator. Sometimes the Courts can suspend the proceedings for a month or two in order to allow the parties to reach the settlement. If there is no settling, there are several steps both parties have to take before the hearing occurs. First, both sides should submit a document where they provide anticipated costs. When these costs are agreed upon, usually both sides are limited to these values.

Also, both parties should disclose all case-related documents, witness statements and expert reports before the hearing. A pre-trial checklist that confirms compliance should be delivered to the Court. A Case Management Conference may take place so that the compliance and readiness for the trial are confirmed.

Only after all these steps are taken a hearing can take place. After the hearing, a successful party gets the costs; however, that’s usually an average of ⅔ of their costs. After the successful trial, the party that lost will get a court order to pay the owed amount, and if they still refuse to pay, you can take further steps to enforce the Judgment and collect the amounts due to you. So, let’s recap the differences: 

Small Claims

• Debt below £10,000 in England and Wales

• Hearing within 6 months

• Free mediation attempt over phone

• Hearing lasts half a day

• No costs awarded to the successful party except the court fees

Fast Track / Multi Track

• Debt between £10,000 – £25,000 for fast track, over £25,000 for multi-track

• Hearing lasts 1 day for Fast Track but can be more than 1 day for Multi Track cases

• Takes up to a year to reach the hearing

• Mediation costs are shared by both parties

• Possible Case Management

• Successful party is awarded with costs, usually ⅔ on the average

Required documents:

• Anticipated costs

• Witness statements

• Expert reports approved by the Court

• Pre-trial compliancy checklist

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More about the Pre-Action Protocol for Debt Claims

When it comes to payment disputes it’s easy to take things personally. After all, you’ve kept your side of the bargain and the non-payment can feel like a slap in the face. At this moment it’s important to take a step back and look for the positives. And there ARE positives in most payment disputes. For example, it could be that only 20% of what you’re owed is disputed, which means you can work on getting the undisputed 80% immediately. This is definitely worth doing, mainly because money in your bank is better than money in your opponent’s bank. Plus it gives you a fighting fund to pursue the remaining sum if necessary.

Importantly, this strategy also helps build consensus, which can lead to an upturn in relations, making the nuclear option of going to court less likely. In fact, only 6% of non-payment claims made through us are eventually defended in court: a figure that should inspire you to take a pragmatic and unemotional approach to future payment disputes. 

In the unlikely event your claim is defended, it will help your case if you can show you took reasonable steps to secure a resolution. But please note: on occasions when a matter does end up in court, a defendant may seek to offset the value of any allegedly defective goods or services by mounting a counterclaim. This is quite undesirable for you, the claimant, and can be avoided if you use the right terms and conditions in your contracts. Indeed, a ‘no set-off’ clause, which is in effect a ‘pay first, dispute later’ agreement will put you in a position of strength when making claims related to payment disputes. That’s because courts will enforce the clause unless there are exceptional circumstances that make it inappropriate. As a result, you can reasonably expect both payment in full and immunity from spurious counterclaims. 

Unlimited Legal Advice – Lovetts Solicitors

The Ministry of Justice have confirmed that following a debate in the House of Lords on 20^th July 2016 and the swearing in of the new Lord Chancellor, Elizabeth Truss, there will be an increase to some Court fees from 25^th July 2016 following the approval of the Civil Proceedings, First-tier Tribunal, Upper Tribunaland Employment Tribunals Fees (Amendment) Order 2016. The Court fees for issuing money claims remain unchanged. The Court fee increases mainly relate to enforcement of a Judgment.

A summary of some of the Court fee increases are set out below: 

The minutes (point 18) from the meeting can be found here.

The Court fee increases also coincide with the Insolvency Service increasing the Official Receiver’s deposit fee under The Insolvency Proceedings (Fees) Order 2016 (SI 692 of 2016) from 21^st July 2016. The increases are set out below: 

In addition, when deposits are now returned following a withdrawal or dismissal of the petition, the official receiver will deduct an administration fee of £50.

As mentioned above, money claims are not affected. Other services such as draft winding up petitions also help you avoid incurring Court fees and Official Receiver’s deposits on 81% of cases due to payment being received by our clients. To find out more information click on our blog article below:

https://www.lovetts.co.uk/blog/how-to-shout-the-loudest-in-debt-recovery

PRICING

When a company has a major financial issue, they can become insolvent. Insolvency comes into effect when the company doesn’t have enough cash to pay its debts on demand. When this happens, a creditor can issue a Winding Up Petition against the company or the company itself can start the insolvency process eventually resulting in the company being wound up and closing its doors for good. 

What comes after a Company is ‘Wound Up’?

All creditors should be informed about the insolvency and will be given a proof of debt form. If creditors do not receive this proof of debt form, it is important they make contact with the nominee Insolvency Practitioner and ensure that they are listed as creditors. An insolvency practitioner can be formally appointed at a creditors meeting providing they have the necessary support from creditors. Approval of at least 75% of the value of creditors is needed by the insolvency practitioner. Once appointed, an insolvency practitioner will go on and assess whether there are any assets ready for liquidation and take action accordingly.  

Liquidation Debt Recovery Priority

If monies are realised from the assets of the company, these will be released in accordance with a certain priority. The priority of payment is listed below:

1. First in line for the payment are the liquidator and the costs of his services. 

2. Then there are the creditors who had been granted security – like banks, lenders and finance providers. These are called the Secured Creditors.

3. Only after the secured creditors have been paid, the company employees claims can get in line for the payout, and those are still subject to the limits that the government has set in place.

4. After the company employees have been paid, next in line for the payout are unsecured creditors like suppliers, landlords, contractors, clients that are due for a refund, and taxmen.

5. The last in payout order of priority are the shareholders. 

What Happens With Insolvency Payout?

These are the priorities but usually in a case of an insolvency payout, there is just enough money for the secured creditors. More often than not the rest don’t get paid. If there is any money left for the unsecured creditors, it’s all placed into a creditors’ pot. For example, each creditor might receive 10 pennies for every £1 of debt. The creditors will be deemed as unsecured unless they gain security by having a charge against the assets. Even if you have a County Court Judgment, you will be deemed an unsecured creditor.  

Belts and Braces

When giving credit to a company consider whether you obtain a Personal Guarantee from a debtor. This way if a company does become insolvent you can have another chance of getting paid in full, this time from the Director personally. If you are concerned about the solvency of a company you are currently trading with, please feel free to contact us.  

Draft winding up petitions result in payment of 4 out of 5 debts, so why wait on a statutory demand? Statutory demands, or stat demands, are usually the first stage of an insolvency process. It is a formal request for payment of an overdue debt and can be used against a company or an individual. The creditor serves it on the debtor, and sits back to wait for the money to come in.

‘Wait’ being the operative word here as the demand allows a full 21 days from the date of service for the debtor to pay up – and that’s assuming they are both willing and able to pay.  As such a stat demand is not always the quickest solution to payment problems and getting your debts paid – there’s just not enough urgency behind it to grind the debtor into paying up quickly. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.

While in some cases, stat demands are the best option – for example, they are required for insolvency of individuals, in most cases, it’s fair to say that a stat demand simply gives the debtor too much time.  You have already waited beyond your payment terms for money due, chased, chased again, and again to no avail.  Why offer a further 21 days on top of your usual payment terms – terms they have already blatantly flouted – when you could demand payment within 7 days and then take them to court if they still don’t pay?

If the debtor has already used up the time allowed in your payments terms, showing no intention of paying or disputing the payment owed, a draft winding up petition against a company is usually the more effective solution for finally getting the outstanding invoice paid. 

Draft winding up petitions can give the debtor 7 days to pay. Added to this, it comes with a warning that if no payment is made, the petition will be presented to court as a request to dissolve the company which is clearly unable to pay its debts, in order for the creditor to recover the debt.

At Lovetts, we have found that when we issue draft winding up petitions on behalf of our clients to their debtor (not yet presented to court) – they have a remarkable success rate, prompting payment in 81% of cases. 

If a statutory demand has been issued and the debtor company does not respond within the 21 days, the next stage is usually a winding up order – this effectively means the debtor has an extra two or three weeks to hold on to your cash. However, you can speed up the process by using a draft winding up petition, and as stated above, a draft winding up petition prompts immediate payment in 4 out of 5 cases. 

Key Points

• Statutory demands are required to make individuals bankrupt but are not necessary for winding up a company
• Stat demands can be used against a company as the first stage of insolvency, but a draft winding up petition is more effective and speeds up the process of securing payment
• A company is deemed insolvent if it does not pay its debts on demand. Therefore, a draft winding up petition giving 7 days to make payment is sufficient
• 81% of draft winding up petitions result in payment

Related article:

How To Shout The Loudest In Debt Recovery

Winding up petitions are all-too-often overlooked by businesses as an effective way to chase up and secure overdue payments from debtors. We have found that draft winding up petitions have an impressive 81% success rate in commercial debt recovery, usually due to the simple fact that it shows you are serious about recovering the money owed to you read more

Join the conversation with Lovetts on LinkedIn

If you go to court to collect money, the burden of proof is on YOU to prove the defendant owes it. That means you need to present a watertight portfolio of evidence in order to get the judgment you want. The best evidence by far is a written contract, but even these can contain ambiguities about who is liable. Just look at this scenario:

Imagine an employee of a company called Kwality & Klass Kitchens Ltd places an order for 100 metres of specially engineered copper pipe. You agree to supply the pipe but you do not receive payment. However, there’s a further problem… That’s because it isn’t clear whether the employee who placed the order was acting on behalf of the company or himself. In fact, the company asserts that the employee was acting as an individual rather than as a representative of Kwality & Klass Kitchens.

So who do you pursue in this situation? Is it the employee personally or Kwality & Klass Kitchens? Well, it’s a matter of interpretation for a court, based on evidence and sources of law. This means that if you have identified the wrong party in your claim, then you have wasted time and money trying to get back what you’re owed. Furthermore, you may have to pay costs on behalf of the other side for the failed action.
Importantly, a court will want to see a paper trail that identifies the contracting party. In the absence of such a trail, the court will hear oral evidence given by both you and the defendant. The problem with this is your chances of success are dramatically cut to around 50/50. That’s because the winner will be the party whose oral evidence the court chooses to believe.

We often see disputes of this nature… As a result, here are some useful tips for creating a legally admissible paper trail that could save you a lot of hassle and expense:

•  Request that a signed credit account application is completed which clearly identifies the contracting party.

•  Ensure the employee clearly indicates against his or her signature the capacity in which he or she is signing the contract. 

•  Insist the buyer raises a purchase order for your records that identifies who is ordering the goods or services.

•  Send across an order confirmation message containing the name of the contracting party.

•  Include a reference of your terms and conditions applying at the bottom of all documents and communications in order to ensure incorporation. 

•  If you require additional security from a company, before letting them have credit, obtain a personal guarantee signed by a director personally or alternatively a parent company guarantee. 

If you are sometimes unsure about the identity of the person or organisation with whom you have contracted, or if you are sometimes owed money that is disputed, then our Unlimited Legal Advice package ensures you have a solicitor on hand to help you… And that could save you money in the long run… 

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Debt collection calls, whether you’re making them or receiving them, are loathed by many but are vital for any business wanting to keep their cash flow healthy. Calling for unpaid debts needn’t make you the bad cop and if you’re ever at a loss for words mid-call we’ve got a few phrases and tips to help you.

The Introduction

If you were calling for any other reason, introducing wouldn’t pose such a problem; however when it comes to a debt collection call this simple ‘hello’ may feel a little awkward. You may also be worried that your calls will be blocked left, right and centre.

Here’s what we would say if talking to the person responsible for issuing the payment:

“Hi it’s John Smith from , I hope you’re well. I noticed you’re behind with your payment. Was there an issue with the invoice that I might be able to help you with?”

Remain polite and positive when talking to your debtors and do not make any assumptions before finding out why the payment is late. It may turn out that some miscommunication has occurred and your debtor is in a position to issue the late payment immediately.

Here’s what we would say if talking to a secretary:

“Hi it’s John Smith from Lovetts. Is it possible to speak to Paul Jones regarding an invoice please?”

If your call is picked up by reception and you’re asked what the call is regarding, say it’s in reference to an invoice. If you use words like ‘unpaid debt’ or ‘late payment’ the person on the other end of the line may not respond to you as well and feel on the defensive from the start of your call.  

Let Them Talk

Your first call with a debtor is your opportunity to remind them of an outstanding invoice and to find out why that is. During this call you should encourage your debtor to do the talking while you listen and take notes for your records. There’s no harm in showing your more caring side by listening to the details of why the payment is late, and ensure the person you are speaking too doesn’t feel pressured as a result of the unpaid debt.

Here’s an example of what we would say:

“Sorry to hear that, can I provide you with further information to help make the payment?”

Don’t Hang Up Without Summarising Next Steps

Before the call ends; be sure to verbally sum up what you have both discussed. These should include confirmation that the payment is late and why, when the payment will be received and by what means.

Here’s an example of what we would say:

“Thank you so much talking with me today. For my notes it would be great if I could recap what we’ve discussed. So, unfortunately the payment is late because the cheque was lost in the post and you will have payment to us by Wednesday 11th May via a new cheque. Have I missed anything?”

Get It In Writing

If the debtor does not dispute the invoice and has provided you with an excuse for paying late, ask if they can confirm their reasons and a date for when payment will be made. Anything you receive in writing will be extremely helpful as evidence should you have to go to Court at a later date. If the debtor does not put it in writing to you, you can put what you discussed during the telephone conversation in an email to them. If the debtor does, not respond contradicting your telephone note, this will be very valuable evidence at a later date.

Calling Twice

The ideal scenario when making a debt collection call, would be to only call the debtor in question once. Unfortunately it may take a few calls to ensure payment is made. Before making your second call ensure you have your notes to hand from the first call, so that you can follow up on the actions discussed. If possible, and if the debtor has good credit, you could use this call to discuss other options to help speed payment along.  

Here’s an example of what we would say:

“What if we come up with a payment plan, would that help?”

Final Tips

•  Keep communication open with your debtor.

•  Follow up on the actions agreed with subsequent debt collection calls if needed.

•  Don’t get sidetracked – stay focused on collecting your unpaid debts and not blurred by multiple reasons behind a late payment or let your emotions (if feeling frustrated by the situation) get the better of you.

•  Keep your records up to date and take notes from each call with your debtor.

Debt recovery for the education sector is a varied and complicated issue, particularly for the higher education sector including universities and distance learning providers. Overdue payments can range from library or parking fines, to unpaid accommodation or even tuition fees. At a time when education system budgets are under severe pressure, it is of the utmost importance for any institution to stay on top of its cash flow and secure any late payments through a debt collector.

Lovetts recently helped one provider of professional education secure overdue fees from a former law student who owed in excess of £3,300.

The education provider, a degree awarding body for business professionals including those entering the legal profession, refused to release the student’s results after he failed to pay his latest fees. When the university took the student to court to secure the overdue funds, the student argued that the delay in results had caused him to suffer loss, and he should therefore not have to pay.

Our advice based on extensive experience of collecting debts for education providers, was to make an application for Summary Judgment because the issues raised by the Defendant had no prospect of success. Lovetts prepared the application, and gathered all relevant evidence before submitting it to the Court with all relevant legal arguments.

With his own knowledge of the law, the Defendant attempted to avoid payment and the court hearing, and in fact even went so far as to appeal the Court Order which was made. However, at the hearing, the Judge was fully satisfied that the Defendant had received the benefits of services provided by the university, and was indeed fully aware that the balance of fees must be paid before results would be released. As such, the university was awarded judgment for the full amount due, plus more than £3,000 in costs and late payment interest.

Cases such as this, with multiple defence strategies exercised, demonstrate the benefits of employing a legal representative with detailed knowledge of debt recovery, and of the relevant industry. Lovetts has worked with education providers for many years, and is able to use its experience and expertise to benefit these clients and help win cases and secure much-needed overdue payments

This case was handled by Sarb Dhaliwal – Chartered Legal Executive

You certainly know that chasing late payments can prove to be an incredibly time consuming and frustrating process. Credit controllers and account receivables work hard to guarantee the business has enough working capital, but with certain debts their options start running out. It is at this stage that a solicitor must be instructed to set the stage for potential legal action – at a price.   

Who Pays For The Legal Costs?

It’s not fair that your business ends up having to pay to chase a customer that is holding on to money that is rightfully yours. If your company has a clause in its terms and conditions that specifies the rate of interest that will be applied if a customer pays late, and makes no reference to the fact you will claim your costs of chasing late payment, it is likely you will be footing the bill for legal and in-house debt recovery costs. However, this can be avoided by amending this clause to utilise the Late Payment of Commercial Debts (Interest) Act 1998 (‘Late Payment Act’) and including a provision that allows you to recover your costs of chasing late payment. 

Ensure you can have COST-FREE debt collection by incorporating these T&C clauses in your contracts and invoices.

How Will This Support Your Business?

The Late Payment Act allows you to claim compensation of between £40 – £100 on each invoice that is paid late. In addition, you can claim interest 8% above the Bank of England base rate. All companies should apply a costs recovery clause in their terms and conditions. Don’t forget that your costs are not limited to the legal fees but also include the in-house expenses and time spent chasing debts prior to instructing a solicitor. Including a provision for reasonable costs will protect your business from losing money when customers don’t pay on time.   

Can Companies Really Achieve A Cost Free Debt Collection Service?

Absolutely. Look at the example below and check how applying the late payment law makes a big difference when recovering debts.  EXAMPLE: Example A illistrates a debt where the client is unable to utilise the Late Payment Law. However, Example B shows the compensation and recoverable costs that could have been recovered if the client were able to utilise the Late Payment Law. 

  In the example above, the Late Payment Act enabled the company to recover £330 in excess of what they would have recovered if they weren’t using the Act. This not only enabled them to cover the £150 costs that fell outside the fixed costs recoverable under the Civil Procedure Rules but it also resulted in an additional £180 in Late Payment Compensation to cover the in house credit control costs of the Company.  Sometimes it is true that you may need to avoid straining a relationship with an important customer but, in general not charging these legal costs is a mistake as, by law, it’s money that belongs to your company.   

Late payment for goods or services can be fatal for your business. That’s because financial liquidity is the oxygen that any business needs to survive. However, there is something you can do… Just take a look at Jane’s story: 

Jane runs an artisan chocolate studio and was thrilled when a buyer from upmarket department store POSH ordered 10,000 Easter eggs. It was a huge order, but Jane managed to fulfill it by taking on extra staff. Easter came and went, and all the evidence showed that the product had been a big success – completely selling out. There was just one problem… Jane still hadn’t seen a penny from POSH, despite sending her invoice months ago. As the year wore on and payment still wasn’t made, the business began having cash flow problems. In fact, it looked like it could go under because of the late payment from POSH. That autumn Jane bumped into her old university housemate, Celeste, and the pair went out for lunch. Jane knew that Celeste was now a solicitor, but hadn’t realised the relevance for her situation. As Jane explained about the problem with POSH, Celeste’s expression became quite stern. “You can’t let them do this to you, Jane. This is your livelihood that’s at stake. You have to take legal action” – Celeste exclaimed. “But I can’t afford to go through the courts and take on the might of POSH” – Jane lamented. “Yes you can. There’s a law on late payment that is designed to protect people just like you – I use it all the time at work” – Celeste said. And sure enough she was right. 

The Late Payment of Commercial Debts (Interest) Act 1998 was exactly what Jane needed to assist her in her debt collection efforts. Not only did she recover the full sum of the debt but she also received interest at 8% above the base rate, plus late payment compensation.

In addition to that, the Act allowed Jane to recover all her Solicitor’s costs plus her own in house administrative costs relating to the debt recovery process. What’s more, once POSH received the Solicitor’s Letter Before Action (LBA), it paid immediately, which meant nobody had to go to court. If you are in Jane’s position, then don’t let the situation continue a moment longer!

Click the link below to get your demo login and check out how CaseManager gives you complete control over your cases – 24/7.

•  Issue instructions at every stage of a case
•  Instruct on payments, credits and write-offs
•  Receive prompts when your input is required
•  Discuss cases via internal messaging system
•  Comprehensive reporting
•  Download case documents (letters, email, etc)

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