Sooner or later most businesses will encounter customers who, whether or not with justification, are either unwilling to pay for services or who simply delay in making due payments. When faced with this situation a business will inevitably have to balance retaining any goodwill with that customer as well as their reputation at large against the needs of ensuring that payment is made and of maintaining good cashflow.

Good credit control procedures are key in maximising recovery of un-paid invoices and in ensuring good cashflow. If late payers are not tackled quickly and effectively, then not only will this affect your bank balance and profitability but, rightly or wrongly, customers may see a delay in chasing payment as a sign that either prompt payment is not a requirement or will take this as a sign that any reasons given for non-payment have some credibility, whether or not this is true. Delay could also mean that your debtor is out spending your money elsewhere or putting any assets against which you could make a recovery beyond your reach.

There are many variations on a theme, but the following would be a good starting point for a good credit control system:-

• Before accepting instructions obtain and check as much financial information as you can about your customer and their creditworthiness to include, as a bare minimum, full names, addresses (including a home address for sole traders/partnerships) and bank account details.
• Keep good records – this applies to your contract with your customer, the work undertaken, any additional instructions given and any invoices raised; this is often the last thing a supplier wants to worry about when they are busy working, but is the first thing that their lawyer will ask for when a debt becomes overdue and particularly if the debt is disputed.
• Diarise & promptly chase outstanding invoices – a polite reminder should be sent immediately an invoice goes beyond its due date, followed up by a second letter 7 days later warning that the matter will be passed to solicitors to collect if the debt remains un-paid.
• Instruct a reputable/recognised solicitor who specialises in debt recovery work – your trade organization should be able to recommend a firm who is familiar with your industry and the type of issues that could arise. Your solicitor will usually send a formal letter before action and, if payment is not made or a valid defence raised, will then commence proceedings for recovery.

Interest of Overdue Debts
A good credit control system should include an agreement with customers that they will be charged interest on overdue accounts. If, however, this has not been done then help may be at hand from the Late Payment of Commercial Debts (Interest) Act 1998 which permits a company to charge interest on commercial debts at 8% above the Bank of England base rate from the date the debt became overdue.

County Court Proceedings
Claims Under £5,000:
If the amount at stake is less than £5,000, the Court will deal with the claim under the “Small Claims” procedure. The small claims procedure in the County Court has been designed to be more informal and a simple and quick method of resolving disputes. Much of the structure and procedure associated with larger and more complicated claims is dispensed with. Nevertheless, a County Court Judgment awarded in a small claim for £2,000 has as much force in law as a judgment for £20,000.

In cases where a Defence is entered, the Court will usually fix a date to hear both sides’ arguments before giving Judgment. Under the Small Claims procedure the hearing will usually be informal, being designed for litigants in person, and, ordinarily, takes place in the Judge’s chambers. The hearing is often within weeks of the Defence being entered.

Claims Over £5,000:
The procedure for higher value claims, where a Defence is entered, is usually more formal and the Court will usually issue directions dealing with exchange of documentary evidence and of witness statements before a full trial is arranged. The trial will typically be around 6 or 7 months after a Defence is served. Although not a requirement, many Claimants would benefit from receiving advice from a solicitor when pursuing larger, more complex, claims.
Entering Judgment:
Where the Defendant fails to either file an Acknowledgement of Service or serve a Defence within the appropriate time, then a Claimant is entitled to enter early Judgment for the full amount claimed. On larger claims, even where a Defence is entered in good time, it may still be possible to obtain an early Judgment where the Defence is weak.

Enforcing Judgments:
Provided a claim is successful, or where no Defence is entered, the Court will order the debtor to pay the amount claimed in the form of a Judgment. If the debtor fails to pay, then a Claimant can apply to enforce payment in a number of ways:

• Warrant of Execution or High Court Writ of Fi Fa – Bailiff or High Court Enforcement Officer is instructed to seize the debtor’s possessions for sale;
• Third Party Debt Order – money owed to a debtor, for example in their bank account, is seized;
• Charging Order & Order for Sale – a debtor’s property can be charged and sold
• Bankruptcy or Winding Up Proceedings;
• Oral Examination – the debtor can be required to provide information to the Court concerning their assets and income

In addition to the above, if the Judgment remains unpaid for a month or more then this will be recorded against the debtor in the Register of County Court Judgments and can make it difficult for a debtor to secure credit in the future. This can be an added incentive to pay.

Summary
Whilst the above procedures will not guarantee recovery of all late payments they will go a long way to maximising the potential for recovery and of ensuring your continued cashflow.

Mercers have experienced litigators who deal with all debt recovery and other contentious claims. If you would like to discuss recovering a debt, or if you require assistance with a larger and more complicated matter, please do not hesitate to contact Adam Marshall on 01491 572138 or by emailing him at: amarshall@mercerslaw.co.uk.