From Paul Marmor representing Sherrards Solicitors

Many businesses will be faced with the situation where their invoices remain unpaid, often by customers who appear to be financially unable, or reluctant, to make payment to you. This in turn can have a knock-on effect on your business by damaging your cash-flow, and harm the business relationship between yourself and the customer with trust and confidence breaking down. So what can be done to recover monies owed to your business?

If a customer appears to be in financial difficulties, it is advisable to stop providing any further services or goods to them, therefore minimising the total amount outstanding to you. If your customer is simply delaying payment to assist their own cash-flow, stopping further services and/or goods will act as a wake-up call to them, and often results in payment. But if this action does not result in payment, and repeated calls from your accounts department have proved fruitless, what else can you do?

There is no reason why you should wait to be paid outside your trading terms and conditions. If you suspect your customer is in financial difficulty and if you act quickly, it may result in you being paid before other creditors, or before another creditor looks to wind up the company.

If it becomes increasingly unlikely that you will receive payment, you should bear in mind that you are entitled to interest charged on the outstanding invoices in accordance with your company’s terms and conditions. If your terms and conditions are silent on the matter of interest, you can rely upon the Late Payment of Commercial Debts (Interest) Act 1998 in respect of business debts, which allows you to claim interest at a rate of 8% above the Base Rate. The addition of interest to the debt, can often prove to be an effective way in which to focus the debtor company’s mind to paying you without further delay.

If despite this you decide that you need to take a more ‘hard-hitting’ approach, a Letter before Action can be sent to the debtor, giving them seven days to acknowledge the letter and a further seven days to provide payment or their full written response should they be disputing the claim, (a total of 14 days from the date of the letter.) If after 14 days you have not from the debtor with payment, or their response, you may decide to commence County Court proceedings to recover the debt:-

County Court proceedings can be issued in your local Court, claiming for the outstanding amount plus interest, and other costs, including the court fee for issuing the claim. Once proceedings are issued, the debtor company (the Defendant) has 14 days to acknowledge service of the proceedings. Should they fail to acknowledge the claim, you (the Claimant) can request that the Court grant Judgment in Default against the Defendant. However, if an Acknowledgment of Service is filed, the Defendant then has a further 14 days to file a Defence (a total of 28 days from the date of issue of the proceedings). If the Defendant files a Defence, disputing the invoice, the case will continue to a full hearing, with facts to be determined by the District Judge. However, if a Defence is not filed within the stated period of time, you can request that Judgment in Default be entered. Once Judgment is entered against the Defendant, this is recorded as a County Court Judgment (often referred to as a ‘CCJ’), which will have a negative impact upon the Defendant’s credit rating.

Once Judgment is obtained, if payment is not forthcoming, you can then consider different enforcement options to recover the money owing to you. These include:

• Warrant of Execution (appointment of a bailiff)
• Charging Order
• Third Party Debt Order

The above provides a general guide. However, each situation is unique and different considerations may apply in your case. We would therefore recommend that you consult a solicitor, about your specific circumstances.

If you have any questions about the matters discussed above, please contact the Commercial Litigation team:-

Karen Dobson – kd@sherrards.com
Barney Laurence – bjl@sherrards.com
Gemma Newing – ggn@sherrards.com

Telephone: 01727 832830