Welcome to the second article in this amazing series which looks at what you can do to try to extract money from a stubborn business debtor.
In the first article I looked at the potential benefits and detriments of issuing a County Court Claim. This time I will take a step back and look at what you could do prior to going to Court with your completed forms and a large cheque for the ever-growing Court fee. You can read this article here.
So, your Credit Control department has sent reminders, statements, dunning letters and a final demand but none of these have worked. The debtor is digging their heels in. Maybe they are even ignoring you but you do not want to issue a Claim because there will be lawyer’s costs to pay, Court fees to pay and the litigation risk of taking a Claim all the way to Trial and not getting the result you deserve.
However, your current pre-legal processes really are not getting the job done so what can you do to get tougher?!
When The Going Gets Tough…
Billy Ocean knew a thing or two about getting tough but I bet he did not know about adding Late Payment Act interest on unpaid invoices. It is your Statutory right to add 8% above the Bank of England base rate so warn your debtor that you will do so if they are late paying and then start adding it as soon as you can. Depending on level of debt that is owed you can also add up to £100.00 to the debt in compensation for the late payment. The threat of all this extra money accruing may be enough to get some of your customers paying on time.
It might be that you do not need to look at Late Payment Act interest because you are a smarty pants and have included a Contractual Interest clause in your agreements. Well done you! Courts are loathed to interfere in business to business deals so get your customers to sign up to pay interest on late payments. A very decent 2% per month, that’s 24% per year maths fans, has been approved by Judges so the precedent is there to do this and make it stick. Again, threatening this and actually following through when you need to can be enough to get customers paying.
If this all sounds too good to be true then, let me tell you, it can actually get even better! You can also add a clause allowing for a debt recovery administration fee into your agreements. This gives you the opportunity to add the specified percentage (tip – do not go too crazy!) onto the debt to try to encourage customers to pay faster. Hopefully this will be another factor that helps to focus your customer’s mind on paying you first.
Adding the extra interest in the suggestions above also gives you the opportunity to make a deal with a customer. If they come wanting to pay but ask you to knock some money off then you can be the good guy and remove some or even all of the interest/fees if it gets the debt paid. If this was a Hollywood film you would also be riding off into the sunset with the leading lady but, sadly, I cannot promise you that here!
If enough customers do actually pay the extra interest and fees then what can you do with it? Well, there are companies whose legal budget for the entire year has been paid by this extra money which is likely to earn you massive brownie points with your Financial Director. Also, you may even be able to justify the wages for another credit controller which makes pre-legal collections that bit easier and might mean you can nip out to the golf course post-lunch on a Friday!