For small businesses, late payments can have a serious impact on cash flow. With business to business transactions where no terms have been agreed or you do not have a contractual provision for late payment, the Late Payment of Commercial Debts (Interest) Act 1998 can step in to imply late payment terms into your contracts.

This means you may be entitled to charge interest on late payments, seek compensation on overdue invoices, together with reasonable legal costs. This helps businesses to recover losses caused by late payment and encourage prompt payments. Here’s what you need to know:

Statutory Late Payment Charges

Under the Late Payment of Commercial Debts (Interest) Act 1998 (“the Late Payment Act”), where applicable, businesses can charge the following:

Interest on Late Payments

Under the Late Payment Act you are entitled to seek:

Compensation

In addition to interest, you can also claim a fixed sum of compensation for each invoice, as follows:

Recovery Of Reasonable Costs

You are also entitled to seek to recover an additional sum towards your reasonable costs if where the interest and compensation under the Late Payment Act do not cover all of your expenses in recovering the debt. Such expenses would include legal fees, debt collection agency charges or administrative costs.

How Lovetts Solicitors Can Help

At Lovetts Solicitors, we specialise in commercial debt recovery, helping small businesses:

  1. Sending Letters Before Action which can include interest and compensation under the Late Payment Act;
  2. Issuing legal proceedings to recover the debt, together with interest, compensation and reasonable costs if payment is not received; and
  3. Enforcing judgments obtained against debtors.

Late payments should never be accepted as the cost of doing business. If you are struggling with overdue invoices, take action today.

Dealing with overdue invoices can be a frustrating experience. However, there are effective steps you can take to tackle this common issue. In this blog post, we’ll explore essential strategies that will help your business collect late payments and maintain a healthy cash flow.

Understanding the Importance of Collecting Overdue Invoices

Late payments can disrupt the financial stability of your business, affecting your ability to pay suppliers and meet expenses on time. Unpaid invoices not only strain cash flow but also consume valuable time and resources that could be better utilised elsewhere. By promptly addressing overdue invoices, you demonstrate the importance of timely payment to clients and maintain a healthy relationship with them. 

Step 1: Communicate Clearly and Early

When it comes to dealing with late payments and overdue invoices, clear communication is key for businesses. The first step in addressing this issue is to communicate openly and early with your clients or customers.

Initiate a friendly reminder about the outstanding payment as soon as it becomes overdue. Be polite but firm in your message, clearly stating the amount owed and the due date.

Utilise various communication channels such as emails, phone calls, or even face-to-face meetings if necessary. By being proactive in your approach, you can show that you are serious about collecting the overdue invoice while maintaining a professional relationship with your client.

Clearly outlining the consequences of non-payment can also serve as a motivator for prompt settlement.

Step 2: Set up a Payment Plan

Setting up a payment plan can be a proactive approach to facilitate the recovery process. By offering flexibility in how the debt can be repaid, businesses demonstrate understanding while also ensuring you receive what is owed to your business.

A well-structured payment plan should outline clear terms and deadlines for repayments. This clarity helps both parties stay on track and avoids any confusion or misunderstandings along the way. It’s essential to communicate openly about expectations and make sure all terms are agreed upon by both parties involved.

Step 3: Consider Legal Action

Sometimes the case may require more serious measures. This is where considering legal action can be a necessary step for UK businesses.

Legal action involves taking formal steps to recover the debt owed to your business through the court system. It sends a clear message to the debtor that you are serious about collecting what is rightfully due.

Before pursuing legal action, it’s important to review all documentation related to the debt and seek advice from debt recovery solicitors. We can provide guidance on the best course of action based on your specific circumstances.

Step 4: Utilise Debt Collection Services

By partnering with reputable debt recovery solicitors, you can increase the chances of recovering the money owed to you while maintaining professional relationships with your clients. As professionals we understand the legal aspects of debt recovery and can navigate complex situations efficiently.

Timely action is crucial when dealing with late payments and overdue invoices. Implementing these essential steps in your collection process will not only help you recover what is rightfully yours but also ensure smoother cash flow management for your business. Stay proactive, communicate clearly, consider payment plans, explore legal options if necessary, and leverage debt collection services to maximise your chances of successful debt recovery in the UK market.

If you’re unsure if your business debt is worth pursuing, check out our recent article here.

How To React To A Defence

Defences should be carefully read and considered. Whilst the defendant must prove its defence you must have documentary evidence, or a credible witness who will attend court, to prove yours.

Time To Respond To Court

The court allows a short time to respond to notices informing us of defences and part admissions. If we do not reply to the court by that date, the claim will be stayed. If the case is stayed, no further steps can be taken without the court’s permission – which will not necessarily be given. If the court’s permission is required an application will have to be made and a court fee paid.

Limited Costs in Small Claims Cases

When a claim is for less than £10,000, the case will be allocated to the Small Claims Track and be dealt with at a Small Claims hearing. No legal costs are normally awarded to either side in Small Claims cases (apart from the fixed costs on the Claim Form, and any other court fees incurred, such as the fee payable with the Direction Questionnaire – formerly the Allocation Questionnaire, and the Hearing fee).

Paper Hearings

For very small cases it may be economic not to attend the hearing but to ask the court to consider papers filed at court and make a decision based on these. This is only recommended for extremely small debts where there is a full paper trail and your case can easily be proven by the witness statement and supporting documents filed. The court requires 7 days notice of non-attendance.

There is a risk the defendant will raise points not previously mentioned and if you are not at the hearing, or represented, then the court may find in the defendant’s favour and strike out your claim.

Summary Judgment

If the defence is weak, or your evidence in support of your claim compelling, we may recommend an application for summary judgment. Costs can be claimed, even for a Small Claim.

Fast Track

Claims for between £10,000 and £25,000 are allocated to this track. We suggest these are handled by our Commercial Department, although some may be suitable to remain in the Legal Department on a fixed fee. This can be determined by using our “Initial Assessment of Defence” service shown below.

Multi Track

Claims for over £25,000.00 are allocated to this track. We recommend you instruct our Commercial Department to handle these on your behalf.

What If There Is A Counterclaim?

If a defence includes a counterclaim it must be dealt with as a matter of priority and a defence to the counterclaim filed at court, usually within 14 days or with the Direction Questionnaire (formerly the Allocation Questionnaire). If this is not filed, the defendant will be able to enter judgment against you. A defence which includes a counterclaim need your urgent attention.

INITIAL ASSESSMENT OF DEFENCE (claims under £5,000) – £250

We offer a special service whereby you can get an initial assessment of the case from one of our solicitors for a fixed Assessment Fee of £200 (ex VAT).

As far as is possible at this stage, the assessment will give you advice on:

Once the case has been assessed, you can decide if you want us to continue conducting the case for you. If suitable this can be for a fixed price of £450.00 plus VAT.

Our assessment will be based on the information you supply and can only be as accurate as that information provided. Please provide a brief outline of the history of the debt and the dispute together with copies of the contract and any correspondence setting out the dispute.

INITIAL ASSESSMENT OF DEFENCE (claim over £5,000) – £500

This service will give advice as outlined for Small Claims Track cases, but it will also provide further information required for claims allocated to the Fast and Multi Track. As costs are recoverable if you win, or payable if you lose, it is vital to get the initial strategy right.

Following news that SMEs are using alternative funding methods to grow their businesses, Lovetts Plc, the debt recovery law firm, is urging small businesses to think just as carefully about who they use to recover their debts to support business growth over the coming year. “With business credit still hard to come by, we’re seeing businesses take legal action on late payments earlier than ever,” says Charles Wilson, Chairman of Lovetts. “Payment periods of up to 180 days continue to put the financial squeeze on SMEs, as large companies sit on an estimated £36.5bn owed to small firms in late payments. It’s therefore essential that businesses get the legal support and advice they need to recover their overdue debts in the most effective way.

“For a start, the latest SME Finance Monitor shows SMEs looking beyond the banks for their financing. We would suggest the same approach is taken when choosing a law firm to pursue claims for debts. Don’t just ask your usual Solicitor to take on this role, look outside the high street for dedicated and expert support.

“A good debt specialist firm will provide online access to the debts being chased, and their status, offering clear costs and reporting through online case management facilities. At Lovetts, for example, each client has a dedicated paralegal, this means there is one contact and they know that case – saving clients both time and stress. We have also just launched a new annual subscription service which means clients can get all the legal advice they need for a fixed cost, rather than watching the clock and racking up large bills.”

A specialist firm can help businesses with every aspect of late payments and credit management. Only with expert advice can SMEs make informed decisions regarding Letters Before Action and when to move a case forward to the claims court. But with ongoing support from paralegals and highly experienced solicitors, businesses can implement the best strategies on persistent late payers.

Charles Wilson concludes, “It’s great to see a more positive economic landscape emerging, and smaller businesses are a key part of this. Their growth is excellent news for the economy, but it must be backed up by strong credit management and cash-flow procedures in order to remain financially secure and provide the best chance at success in the future. Ensuring they have the best legal support in chasing up overdue payments is the first of many important steps to secure their future.”

What to look for in your legal eagles:

* Source:http://www.sme-finance-monitor.co.uk 

** Source: http://www.telegraph.co.uk/finance/businessclub/9782988/Government-going-to-war-over-37bn-late-payments-to-small-companies.html

STOP THE CLOCK.
LOVETTS SOLICITORS OFFERS UNLIMITED ACCESS TO LEGAL ADVICE
With new, annual contract arrangement
www.lovetts.co.uk

In a significant move that once again challenges the usual conventions of legal practices, Lovetts Solicitors, the leading debt recovery law firm is offering customer access to legal advice, ‘on tap’ without the worry of a ticking clock through a new Annual Subscription service. To mark the launch, new and existing Clients who sign up for the service on or before 31st October 2013 will benefit from the Lovetts Annual Subscription contract for free until 1st December 2013. The usual cost will be £1,500 for SMEs and £3,000 for larger companies – over £20 million turnover.

Lovetts Annual Subscription service provides access to unlimited advice via telephone or email from experienced solicitors who specialise in commercial debt collection, litigation and dispute resolution. This allows clients to estimate their chance of success, set out their legal position and agree a strategy for collecting the debt. They can also use the advice to determine the likely costs involved if they decide to proceed with legal action.

Charles Wilson, Chairman of Lovetts, explains “At Lovetts, we have always challenged convention and looked at ways to make our business as open and accessible as possible to our clients. In some cases hourly charging is right and appropriate, but we also know through feedback from our clients that it can be a real bugbear and many would prefer an annual fixed cost, so we have introduced this subscription to provide a choice.

By subscribing to the annual advice subscription service our clients can simply pick up the phone to a solicitor and talk through any issues they may have with a debt, without being charged for the time. If it does not make commercial sense to pursue a debt through legal action, we will advise the client accordingly so they can take alternative action. This provides an invaluable opportunity to reduce costs by ensuring they take the most effective action for each and every case.

We believe this service will offer real value while allowing Lovetts to build stronger bonds with our clients by delivering quality services that become an extension of their business.”