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Wouldn't all companies love it if their customers paid invoices on time? There would be no need to ever chase debts and worries about cash flow would be a thing of the past. However in all likelihood we'll never reach this debt free utopia.
Businesses can invoice clients early, wait patiently for payment, send chases and hope that payment will someday finally arrive.
But sometimes those little reminders, polite conversations, copy invoices and monthly statements are not enough to deal with those who are adamant they are not paying.
So what can you do to ensure your business is paid the money it is owed?
Choosing how and when you need to take formal action can be difficult and there are a few options at your disposal. After all, the last thing you want to do is spend time and money going head-to-head in court with a client about an invoice the second it is overdue.
But when you've exhausted the chasing letters and phone calls, what are the next steps of getting your invoice paid?
Evidence needed to prove a debt recovery claim
Should you get an agency or solicitor to collect a debt, or do it yourself?
To make a claim on your own check out the HMCTS Money Claim Online service. It offers a process to recover the money your business is owed by walking you through submitting an online claim and paying a court fee.
You need to be aware that this is court proceedings and so you should familiarise yourself with the 'pre action' guidelines along with what happens should you win your claim and receive a judgment. Read the Money claim online user guide thoroughly before starting the claim process.
Debt Collection Agency
When you hire a debt collection agency they will start chasing the debt and in some scenarios begin the legal process to recover it through the courts. You should bear in mind that debt collection agencies don't have any special legal powers beyond what you can do yourself. Generally a debt collection agent will also take a proportion of any debt that they are successful in collecting to cover their fees.
A Solicitor should provide some general advice on the process and a fixed fee of what they will charge. If their fees are more than the money you are seeking from your customer, then you'll be better going with another route. However experienced debt recovery solicitors should have a fee structure which complements the amount you are wishing to recover and the complexity of the issue (i.e. it will be more complicated if the debtor defends or disputes the debt).
In the majority of cases, a single solicitor's 'letter before court action' does the trick and the customer will pay their bill rather than face court proceedings from a law firm.
If court action is needed a solicitor can explain the risks and advise on items such as recovering court fees and any statutory late payment charge that can be made. For example, interest may be able to claimed on top of the debt (usually 8% above base rate) via the Late Payment of Commercial Debts Act.
You may feel bad 'hounding' a customer about paying their debt and even getting a solicitor involved, but you shouldn't. You did your job and it’s not your fault they have failed to pay you in a timely manner.
Being understanding to your customers while knowing your legal rights is what all responsible businesses should aim for.