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September 26, 2015

The low down on working with a debt collection agency

Dealing with late payment can be frustrating, stressful and time-consuming. If you are constantly facing the challenge of trying to get invoices paid, one option is to enlist the help of a specialist debt recovery business. We’ve spoken to a firm of expert solicitors who provide legal advice and assistance to business owners struggling with late or non-payers.

Late payment is one of the leading causes of business failure. If the cash stops flowing, many firms – even large, successful ones – can find themselves forced out of business.

New research has found that nearly a quarter of all small and medium-sized businesses in the UK are facing a potential financial crisis due to the late payment of invoices. It found that the average SME is owed £40,857 in unpaid invoices, with £20,937 of the total overdue. When applied across the UK’s 5.2 million SMEs, this equates to as much as £212 billion.

An unpaid invoice can mean the difference between a successful month of trading and a dangerous financial shortfall. In the worst cases, it can lead to insolvency. If you are owed money, it is vital you explore the options available to recover outstanding debts before it is too late.

It is always advisable to try and resolve a late payment issue before escalating the matter further. A personal phone call can be an effective way to chase overdue payments. However, if this approach does not work, using a debt collection service can be a quicker, less confrontational way of recovering debt rather than taking court action.

At Inspira, we’ve worked with a number of debt collection specialists over the years and recently spoke to Michael Higgins, Solicitor and Managing Director of Lovetts, a specialist debt recovery company about how they help their business clients recover their debts.

Q – What does a debt recovery and commercial litigation specialist like Lovetts do?

A – We are a firm of solicitors specialising in business to business debt recovery and dispute resolution. We can help whether you are trying to secure payment from a customer in the UK or overseas. We primarily provide debt collection services on a ‘no win, no fee’ or a fixed fee basis. If your customer (the debtor) continues to fail to pay (despite lots of chasing), we provide expert legal advice and help with the next steps required to secure vital payments. We also advise businesses on how to protect themselves from the risk of late payment as well as the things they can do to put themselves in the best position if they do need to take legal action.

If the situation escalates, we look to ensure matters are resolved as effectively and efficiently as possible and if required, we can issue court proceedings against debtors and provide assistance throughout the legal process. Even if claims are disputed, we have an experienced team of Solicitors and Paralegals that can deal with the dispute whether that be through mediation, summary judgment or going to trial.

Q – What are the steps a debt recovery business takes to get debtors to pay?

A – The most common step in the debt collection process is a formal letter to the debtor, known as a Letter Before Action (LBA) which sets out what is owed from a debtor and gives them a set time period (usually 7 days) in which to pay. In about 84% of cases, this results in debts being settled quickly without the need to take the matter any further. Should payment not be made, then court action can be issued and a claim form filed with the Court. If the debt is still not paid after the time authorised by the Court, then a judgment can be issued and an application for enforcement made.

Q – When should you get a debt recovery specialist involved in chasing your debts?

A – You can choose to work with a debt recovery specialist at anytime in the debt collection process but we would advise that if you have customers that habitually pay late or you are struggling with a particular debtor, don’t delay, seek specialist help to ensure you get paid as quickly as possible.

Q – Is approaching a specialist law firm something business owners should do as a last resort after trying other options first?

A – Where feasible, it is always advisable to try to resolve late payment issues before escalating the matter further. A personal phone call can be an effective way to chase overdue payments. However, if this approach does not work, using a debt collection service can often be a less confrontational way of recovering debt. We understand that an amicable resolution is the best outcome and a reputable specialist firm can chase payments in a highly professional manner which does not alienate the customer. In most cases we deal with, a letter before action (LBA) sent to a debtor does not mean the end of a trading relationship between the client and the debtor.

Q – How often do late payment issues end up in court?

A – Just 16% of cases will result in court action. The majority of debtors will pay following receipt of an LBA.

Q – Do you have any tips for business owners struggling with late payment?

A – My biggest tip to businesses would be to always ensure you have a contract in place, signed by your customers, with your payment terms and conditions clearly stated. Terms and conditions act as the backbone of agreements and it is important to get them right. Putting everything in writing right at the start gives you legal protection, should customers renege on their promise and fail to pay on time. It can also act as an incentive for your invoices to be at the top of the pile for payment rather than the bottom.

Q – Are the Government’s late payment laws working?

A – The Late Payment of Commercial Debts (Interest) Act 1998 compensates creditors for the late payment of debts and also acts as an effective late payment deterrent. In 2013, the law was enhanced to allow creditors to claim reasonable costs of recovering the debt, including the cost to your business of credit control procedures as well as instructing debt collection agencies or lawyers. This is a very positive change to the late payment legislation; however more needs to be done to raise business owners’ awareness of their new rights.

Late payment can be a huge problem for small and medium sized businesses. However, there are simple, effective solutions that can help. By staying on top of your finances, adopting a modern approach by using online accounting software to keep track of debtors and considering a specialist debt collection service for problematic non-payers can make a significant difference.

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