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Have you provided goods or services to a customer, invoiced them but received no response? Have they stopped communicating and ultimately ignored your requests for payment to be made?
Keeping aged debts to a minimum and ensuring bills are paid is increasingly important and good business practice. This article looks at what to do if a someone owes you money.
There are several options you can consider to recover the sums due and protect your interests.
Repayment agreements
Contact your customer to seek an explanation as to why the debts are unpaid. This also gives you the chance to ascertain whether your customer is disputing payment. If you have a strong customer relationship, there may be room to agree repayment terms.
Terminating the contract
If you are unable to reach agreement, you may consider threatening to cease trading with the customer or to end the contract in order to pressurise your customer into making a payment.
If you decide to terminate the contract for non-payment, you should check the contract to make sure that you terminate it correctly, otherwise the debtor may have a claim for breach of the contract. If in doubt, seek legal advice before you take any action.
Keeping goods
If you supply goods to customers, your terms and conditions may include a clause which provides that you retain ownership of those goods until the customer has paid for them. You should always check the contract terms. These clauses are often complex and you should seek legal advice before taking any action.
Letter before action
A letter before action provides details of the sum due and requires payment by a certain date. If payment is not made, your customer is warned that proceedings will be issued. That may be sufficient for payment proposals to be agreed to avoid the matter escalating and further costs being incurred.
County court proceedings
If your customer ignores you or does not respond positively to a letter before action, the next step is to issue proceedings. Once the claim is issued, your customer will be required to respond within a certain time.
If your customer does nothing or admits the debt, you can request judgment. If your customer defends the claim, careful consideration will need to be given to the defence. In certain circumstances, where the matter is straightforward and your customer’s defence lacks merits, it may be possible to apply for summary judgment.
If the matter proceeds to trial, directions will be given for evidence, including disclosure of documents, witness statement and expert reports (if appropriate). A trial will be listed where the matter will be determined. If a judgment is obtained, this can affect your customer’s credit record.
Generally speaking if you win, and your claim is not allocated to the small claims track, you can expect to be awarded your costs. There will always be a shortfall in the costs awarded compared to the costs incurred. There is then the question of recovery.
If the claim is allocated to the small claims track, (usually this relates to claims of under £10,000) generally only nominal costs are awarded even if you win.
Before a claim is issued, it is important to consider the financial position of your customer. If your customer is in dire straits, there may be little point in issuing proceedings, as even if you obtain a judgment or are awarded a sum of money, your customer may not be in a position to make any payment.
Winding up petition
For a debt exceeding £750, in the case of a company or £5,000 in the case of an individual, you can serve a statutory demand on your customer seeking payment within 21 days.
If payment is not made, it is open to you to present a winding up petition in the case of a company, or a bankruptcy petition in the case of an individual on the grounds that your customer is unable to pay its debts.
This is a serious threat and can be effective in encouraging your customer to pay.
If a winding up order or bankruptcy is made, it is likely that you will be an unsecured creditor and there is a risk that you may only receive a nominal amount – or nothing.
Other considerations
Consideration should be given to all the commercial factors affecting your decision to enforce the debt. How important is the commercial relationship with your customer? How large is the debt? What are the contract terms? How far you are prepared to enforce the debt? What are the costs that are likely to be incurred? Is there a realistic likelihood of recovering the debt?
We have expertise in acting for companies and individuals who are seeking to recover debts and are faced with these issues. If you need advice in relation to recovering your debts, we can help. We will work with you to review your position and determine the best possible outcome in the most cost-efficient manner to recover the outstanding debt.
For further information call Jill Lawton on 01689 887855 or by email jill.lawton@cwj.co.uk
Updated 17/11/23