Managing your cash flow (5 of 7)

Taking Further Action…..

It is a fact of life that not all your customers will pay you.

Having chased for payment and where the money has still not arrived, it is important to take action to recover the debt as soon as possible. The longer the debt remains unpaid, the more difficult it will become to collect and more likely it is to turn into a bad debt.

One way forward is to use the services of a debt collection agency. The advantages of using a debt collection agency are:

• They have the time, expertise and resources needed to recover payment.
• It can be a fast method of recovering debts so will save you time.
• Usually, you will only have to pay a commission on any money recovered.
• If the debt collection agency is polite and professional, you may retain the customer. This is unlikely to be the case if you take legal action.

If the debt is not disputed and the debt collection agency is unsuccessful in recovering payment you may decide to take your debt claim to court. However, court action should be seen as a last resort.

Irrespective of the merits of your claim, always consider the commercial reality. Make sure the customer can pay. If the person or business you are taking action against is insolvent, has no assets or has a history of bad debt then you cannot be certain of receiving all of the money owed. (see Know Your Customer)

If you do decide to issue court proceedings, be prepared for the costs. You will have to pay court fees in advance and at different stages of the claim, including if you have to enforce any judgment.

These fees may be recovered from the debtor if you win your case. If you lose, or do not succeed in obtaining payment or successfully enforcing your judgment, you will not be able to recover the court fees, nor any legal costs.

As long as the debt is more than £750.00, an alternative to issuing court proceedings is to serve a Statutory Demand giving the debtor notice of your intention to issue a bankruptcy (individual) or winding up (company) petition, if payment is not received within 21 days.

It is, of course, possible that if the customer fails to pay, their insolvency may follow and you are then even less likely to recover the debt.

If the debt is disputed, your contracts may already specify how disputes should be resolved. However, even if this is not the case, you must consider alternative dispute resolution (ADR) as a possible way of sorting out your claim, before taking court action. Resolution procedures or ADR processes, such as mediation, negotiation or arbitration can make it easier to control costs and are often less confrontational than court proceedings. However, you should always take advice before using ADR.

Whatever the situation, always take expert advice on the most appropriate legal process available, in order to enhance your chances of getting paid.