You invoice early and chase payment to keep a healthy cashflow coming through your business, however, sometimes polite reminders aren’t enough and the money you’re owed isn’t forthcoming.
Deciding if and when to take more serious action can be tough. Sometimes our British reserve around not talking about money can make us hold back. For the sake of protecting your business, this barrier needs to be broken down. However, the good news is that there are options available, and taking your customer to court is a last resort.
Making a claim
If you feel confident and the amount is relatively small, you can start a claim yourself. Full details on how to do this can be found on the HMCS Money Claim Online Services website. If you are unsure, or if the claim is for a larger amount with more complexity, then a solicitor can do this for you.
If you decide to instruct a solicitor, there are a few things you should have prepared. Ensure you have the terms and conditions that both you and the client agreed upon, all invoices, proof of delivery and any communications about the order or the client's debt.
In many cases, a single letter from a solicitor will push your overdue client to pay very quickly. The letter will outline that there legal action will be taken and there will be mention of a statutory late payment fee. In addition, the Late Payment of Commercial Debt act sets interest at 8% above the Bank of England base rate. A request of payment within seven days usually sees action being taken by your client.
Moving matters on
There is no guarantee that a solicitor's letter will spark action. If this is the case, you are left with two options. These largely depend on whether or not the client disputes the debt. If they do not dispute the debt but they don't pay because they do not have the available funds, and the debt is more than £750, you can begin insolvency proceedings.
If this is the case, an individual can be made bankrupt or a business wound-up. A third party will then sell their assets to service the debt. It is worth bearing in mind that other organisations may be also owed money and they too will be eligible for a share of the proceeds.
If the sale value of the company’s assets does not cover the debt, you will only receive some of what you are owed. If a company that owes you money has little or no assets, you might not get anything back. This should be taken into consideration, along with the legal fees you will incur, when deciding if it is worthwhile to proceed.
Taking a matter to court
If your client has a genuine dispute on substantial grounds and a judge believes there is a chance you aren’t actually owed the money, you cannot begin insolvency proceedings. Even if you believe that their argument is unfounded, you will have to take the issue to the county court where they will be given the opportunity to defend themselves.
If they choose not to defend themselves, you will be given an immediate judgement. However, if they do defend the issue, you may have to bring documentation, witnesses and experts into play so that it can proceed to trial.
If the judge decides in your favour, you can:
- enlist a bailiff
- make a claim to a third party that holds their money (usually a bank)
- put a charge against their property, meaning that you can enforce a sale and you will be the first to be paid.
It is worth remembering that you can take a professional approach without being overly-aggressive. It’s a contractual relationship that you have entered into in which they asked you to carry out an action by a certain date.
The other side of that contract is that they agreed to pay you a certain amount on a set date. If these things were agreed in advance, you’re only following up in the same way that your customer would if you hadn’t delivered.
One final piece of advice: whatever you do, don't be tempted to forge a legal letter.
A solicitor would not make idle threats against a debtor. If they were to begin legal action against a debtor, this would be clearly explained that it is a last resort when all other efforts have failed.
This article was written and contributed by Richard Boyd of North Yorkshire Law
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. It is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered, please speak to North Yorkshire Law directly.
Published on 6th November 2018