Debtors, people who owe you money can prove problematical and become bad debts but what can a business do to avoid or deal with this problem.
According to a report released in March 2011, the amount of debt written off across the UK rose by 33% over the preceding 12 months, reaching a staggering £43bn – making Britain the second-worst country in Europe in terms of unpaid bills.
What can you do if a customer refuses to pay an outstanding debt and you want to avoid the time and expense of court action?
But court action should always be a last resort, taking court proceedings can be effective, but also it can also be expensive, and take time quite apart from being stressful.
By agreeing terms of trade at the beginning and invoicing on time, businesses should be able to avoid court action especially if they have credit-checked new customers.
Even if you follow these rules some times your procedures may fail to stop payments becoming overdue.
Debts are classed as overdue 30 days after an invoice is issued, that is unless you specify otherwise in your payment terms. After this time if a customer cannot or will not pay, contact them to find out why. There might bee genuine reasons, for example, they might be waiting for payment from one of their customers.
Whenever possible, try to negotiate a part payment from them and reschedule the remainder. However if they already have outstanding County Court Judgements against them, are bankrupt or in liquidation the debt may be irrecoverable.
You should remember that you are entitled to claim interest on late payments. Legally, you can charge the Bank ofEngland base rate (currently around 0.5 per cent) plus 8 per cent for each day an invoice is overdue.
The next step if you fail to reach a resolution, write and warn the debtor that you intend to start legal proceedings. If you get a solicitor to send a letter it shows that you’re serious. Many times they will pay up immediately because like you they want to avoid the cost, hassle and uncertainty of going to court.
If after this they still have not paid, you can request a solicitor to issue a Statutory Demand for payment which they must make within 21 days if they’re not disputing the sum and it is greater than £750.
Should the debtor still not pay up and you believe they have sufficient money to do so, you can threaten to petition for their bankruptcy if they are not a limited company if they are a limited company you can threaten to request a winding up petition to be issued
Debt-collection Agencies and Factoring
You could however use a debt-collection agency, but check that it is registered with the Credit Services Association. Often, faced with the prospect of being pursued by a debt collector, many pay up straight away. See details of my recommended debt recovery services company Daniels Silverman.
One way to avoid this problem is using a debt-factoring service provider. A factor will advance you up to 85 per cent of the value of each invoice before your customer pays and the remainder (less a charge) when full payment is received. Factors can also act as credit controllers on your behalf and will chase customers for payment.