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Late Payment - Top Ten Tips for securing debt recovery

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Small and medium sized businesses continue to be hard hit by the credit crunch, with late payments resulting in debt recovery problems, warns ACCA (the Association of Chartered Certified Accountants).

For many months now, we've reported the worsening late payment climate in the UK - a worrying by-product of the "credit crunch". Alongside our growing collection of cash flow articles, the ACCA have provided us with the following top tips for securing debt recovery:

1. Decide whether it is worth a fight. There are no strict rules about whether to pursue a debt and which approach to take. Much depends on the individual circumstances of the debt and the customer.

2. Consider your customer. If it is a valued customer, be diplomatic in your approach. If it is a one-off customer, you can be more assertive.

3. Assess why the customer has refused to pay. Is there a dispute over the goods? If so, resolve it immediately. Otherwise, the debt will be difficult to recover. If the customer is in cash flow difficulties, you may wish to try to negotiate a payment on account. Contact your local court to check the Register of County Court Judgements to find out whether there are already outstanding judgements against the customer. If so, the debt may be irrecoverable.

4. If the customer does not have a good reason for not paying, you may choose to use a debt collection agency or a solicitor specialising in debt collection. You could also serve a statutory demand or go to court.

5. If you opt for debt collectors, ensure you make checks before using an agency. Is it registered with the Credit Services Association? What methods does it use? If it uses unlawful methods such as harassment you could be liable.

6. For debts over £750, you can issue a statutory demand. This is a formal demand for payment in a specified format. If the debt is not paid after 21 days and you think there is money available you can petition the court to wind up the company, or make an individual bankrupt.

7. Opting for the Small Claims Track is useful and inexpensive in pursuing debts of up to £5,000. Court claims between £5,001 and £15,000 are dealt with by a fast-track procedure in the County Court. Claims over £15,000 can be issued in the High Court.

8. Remember that the real winners in debt recovery are often the lawyers and debt collection agency. Try to have a meaningful dialogue with your customer to find out why the debt has not been paid. Explain what steps you intend to take and try to reach an agreement.

9. Review your contracts. Ensure that they contain a dispute resolution procedure with your customers.

10. For further information on debt recovery, use a chartered certified accountant. Details of a local accountant can be found on www.accaglobal.com.

Posted August 5, 2008
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