Date 30 September 2011
1. How can I minimise the risk of my invoices not-being paid?
Establishing routine procedures before you contract with a customer can significantly increase the likelihood of you being paid in full and on time. For example, make sure you know your customer. In the absence of a previous relationship, the value of Credit checking and knowledge of their trading history cannot be overstated.
Your Terms & Conditions also, should clearly state within how many days invoices must be paid and that interest will accrue where payment is overdue. Ensuring your customers have a copy of and agree to be bound by your Terms & Conditions at the point of contract is also essential. Finally, ensure procedures are in place to invoice accurately & on time and, that a record is made of the date each invoice will become overdue.
2. The Due date for payment of my invoice has passed. Should I take action?
Before taking action to recover an unpaid invoice, consider first if there may be a reason why payment has been withheld? Consider telephoning your customer to determine that the goods/services were delivered on time and were of sufficient quality. Keeping a detailed note of this conversation, will stand as evidence that you checked these points should a dispute later arise with your customer.
Consider also the importance of your relationship with your customer. Are they key client? Are they likely to give you repeat business? If so, taking immediate legal action to recover an unpaid invoice could jeopardise that relationship. Similarly, if your customer has cited cash-flow problems as the reason for non-payment, this may influence your decision as to whether to incur legal fees in pursuing payment of the same.
3. How Much Interest can I charge on an overdue invoice?
Where you contract with a business, The Late Payment of Commercial Debt (Interest) Act 1998 allows you to claim interest on an overdue invoice at a rate of 8% over the Bank of England’s base rate. The Act also allows you to claim statutory compensation of up to £100 on all unpaid invoices. Where you contract with an individual consumer however, the statutory rate of interest which can be charged is limited to 8% only.
Therefore, if your Terms & Conditions do not provide for interest recovery, amend them to state that interest will accrue on unpaid invoices at the Statutory Rate and send notice of this change existing costumers, stating that it will apply to all future orders.
4. I want to take action to recover my debt? What are the first steps?
Before commencing legal action, consider allowing the outstanding invoice to be paid via an instalment programme. This should be documented and signed by your customer, with the date of each instalment clearly listed and provision made reserving your right to take enforcement action where an instalment is missed.
Otherwise, you could send a ‘letter before action’ to the debtor, stating a deadline for payment of the outstanding invoice sum plus interest, which if not met, will result in you commencing court or insolvency proceedings without further reference to debtor.
5. My Debtor has not responded to my demand for payment? What should I do next?
Having said you would pursue court or insolvency proceedings where an invoice remains unpaid, stick to your word and do just that. This not only brings the matter of the outstanding debt to a resolution, but also signals to other customers your resolve to pursuing outstanding invoices, which in itself will minimise future late payment.
To commence court proceedings, you will need to submit to your local county court, a claim form and supporting particulars of your claim, together with the court fee. Where you obtain judgment, a solicitor will be able to advise you as to various enforcement options for recovery of the judgement sum plus your costs.
Alternatively, insolvency proceedings can be commenced by issuing a statutory demand for payment of the outstanding invoice sum plus interest. If the demand is not paid within the period stated therein, this can be take as evidence that your customer is insolvent and by that, enabling you to consider presenting a winding-up / bankruptcy petition against them.
SA Law offers a low cost fixed price Debt Recovery Scheme. Click here to read more.
Contact Us
For further information or to discuss a particular matter or situation in more detail, contact Ben Ashworth at our St Albans office by email at ben.ashworth@salaw.com or on 01727 798058.
© SA LAW 2011
Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.