A frequent problem that nearly all business will experience at some time is the recovery of money owed.
If the amount is relatively small, such as £150.00 it is sometimes better to write off the debt, however, this may set a precedent and encourage others to incur small debts against the company in the hope that it will simply be written off. Obviously £150.00 may not have a dramatic effect on the balance sheet of the business but if it happens 10 times it might.
Businesses are to be encouraged to take a diplomatic but firm approach with debtors as it is often not upsetting a valued customer over a debt which may be caused by factors out of their control. Businesses should be encouraged to discuss the situation with the customer and to try and resolve any problems by agreement. It is not advisable to begin legal proceedings without first speaking diplomatically with the debtor.
One of the first things to do when a payment becomes overdue is to have a look at the contract that is in place governing the relationship. The contract may include interest payments which will be due for overdue payment. If not, the business may still be able to charge interest under the Late Payment of Commercial Debts (Interest) Act 1988, which comes into play where there are no written terms of credit.
Before legal proceedings are commenced it is recommended that a business undertakes standard credit control practices. It is always common practice to send reminders to the customer, speak to them on the telephone and write letters informing them of the overdue amount before business begin legal proceedings.
Once a business has taken the decision to begin legal proceedings, the first step would be to send a formal letter demanding immediate payment of the overdue amount and stating that you will commence the aforementioned legal proceedings if you don’t receive payment of the debt by a specific date. It is advised that a business instruct a solicitor to send this letter as it shows the customer how seriously the business is taking the recovery of the debt.
There are certain evidential barriers which a business will have to pass in order to show that they are owed the debt they claim. In an ideal world a business will have a signed contract setting out the relationship with the customer. However, if this is not possible, other documentary evidence may be appropriate. It is advisable that the business keeps a clear record of any correspondence in relation to the debt in question between themselves and the customer.
The way the claim will flow through the courts will depend on the amount of money that is owed. If it is what is described as a small or medium claim it is likely that the proceedings will be in the County Court. Larger claims will be in the High Court, these will be for debts of over £25,000.00.
If the debt is undisputed and for more than £750.00, there is an alternative option available which is to issue a statutory demand (useful guide here). This gives the debtor 21 days to pay up the amount owed after which the issuer of the statutory demand can petition to the court to wind up the Company which owes the money or make the individual bankrupt.
This article courtesy of Jonathan Green, trainee solicitor at Darlingtons, you can visit their site at http://www.darlingtons.com