According to research from Sage, 17% of all payments to UK-based small to medium-sized businesses arrive after the due date. These late payments have a serious knock-on effect on business operations, not only disrupting cash flow but leading to time being wasted chasing clients and causing significant stress. Debt collection expert Darren Harmer looks at ways you can get the money your business is owed.
As I covered in my last blog, prevention is the best cure when it comes to cash flow. However, even with effective procedures in place, there will always be incidents of accounts not being paid on time. I'm going to look at the various steps you can take to ensure late payments are paid and, if necessary, how to escalate your disputes.
The fact that an account has become overdue is not necessarily a cause for alarm but it should be attended to immediately, and not left to deteriorate. It is important to quickly establish what the issue(s) are. Companies are often reluctant to call their clients to discuss this particular issue but a quick call to the clients’ accounts staff can often resolve the matter quickly.
Ultimately, if your client has failed to sign the account off for payment, whatever the reason, the faster you are made aware the faster it can be resolved.
Depending upon whether your clients are of a ‘one-off’ nature or more regular you should be able to develop an instinct based on their previous behaviour. However, this should not be taken for granted. A client of previously good character can change pattern for any number of reasons.
If the client has raised a dispute you need to take it seriously even if you completely disagree, as this will make a difference should the matter result in legal proceedings. You should listen and make a record of all the facts and put them in writing. You should respond to the dispute in writing (email is acceptable) acknowledging all the points raised with your responses where appropriate.
If ultimately you cannot agree on terms there are a number of avenues open to you one of the main being Alternative Dispute Resolution (ADR). These days the courts expect all parties in a dispute to have at least attempted ADR before proceeding legally and failure to do so may result in penalties, in terms of costs, later down the line.
There are numerous independent agencies providing ADR and, as many are industry-specific, it is worth visiting The Chartered Institute of Arbitrators (CIArb) to find the right one for you.
Despite our best efforts, there will always be those clients who default, whether intentionally or otherwise, and if this happens you need to give serious consideration as to whether or not it is prudent to continue supplying goods and/or services.
Before making a formal decision you need to clarify a few details:
You should always do your utmost to obtain proof of the clients' financial position before entering into an arrangement. If not, you allow their financial problems to become yours.
It is, of course, a difficult decision to make as to when to implement the suspension, for example, when an account hits 60 days old. You should have this issue built in to your credit policy and your terms and conditions so that it doesn’t not come as a shock to your client.
Ultimately you don’t want a large backlog of outstanding invoices if they go into liquidation.
When you have exhausted your internal procedures you need to have a policy in place for the next course of action. The decision as to how to proceed will often be driven by the size of your business and, therefore, the core competencies of your administration team.
Smaller companies often lack the experience to navigate our civil court service, and with smaller claims (under £10,000) certain expenses cannot be reclaimed from the defendant, such as solicitors costs. In many ways, Her Majesties Courts And Tribunal Service (HMCTS) has sought to make the process easier to navigate for Litigants in Person (i.e people representing themselves) and much can be done online – visit HMCTS for more information.
An alternative to going straight to litigation is to engage a debt recovery expert to take on the matter for you. The Debt Collection Agency’s (DCA) primary function is to collect the debt on your behalf without resorting to litigation. The success often depends on whether the debt is alleged to be disputed, but they are often a faster and more cost-effective alternative to litigation.
If you are to consider the DCA route, one necessary precaution is to run a check on them through the Credit Services Association. Also, check search engines as much valuable information can be obtained this way – particularly if someone else has had a bad experience with them.
The DCA route should be faster and even if you decide to engage them to conduct the litigation side of things for you they will be highly experienced in doing so and will avoid many of the pitfalls the Litigants in Person often encounters. As to whether the DCA is cheaper, this often depends upon the value of your time to your organisation but as long as you negotiate a reasonable rate using their expertise should ultimately be cost-effective.
There are a number of different methods of enforcing payment of a debt post-judgment (ie a County or High Court Judgement) and again details can be found via HMCTS. Which one you choose will generally depend on the size of the debt and the outcome you are seeking. If the debt is under £600 you can use the county court Bailiff Service but in my experience, this is slow and rarely successful. If the debt is over £600 it can be collected by a High Court Enforcement officer which has a much higher success rate, particularly where the debt is owed by a company rather than an individual.
A third party debt order is another of the more successful tools I have used, typically levied on the debtor's bank account. It effectively freezes the account until the debt is settled. However, any action should be seriously considered and investigated before proceeding as it may be more expensive then you expect and may simply result in throwing good money after bad.
Darren Harmer MCICM (g) runs Harmer Collection Services, a Debt Collection Agency. If you have any concerns or wish to discuss credit control or debt recovery in further detail, please do not hesitate to contact him by email or call him on 020 7249 3888.
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