If your customers do not pay you on time (or at all), then they are inflicting serious damage to your business.
It is something that is so often overlooked as ‘one of those things’ small businesses just have to put up with, but with the right approach you needn’t let your business succumb to this common problem.
It has been said that sales are the key to a successful business, but in reality keeping a keen eye on your cash flow is just as important. Cash flow is everything, the very lifeblood of your business – ask your bank!
Are you doing everything you can to ensure that invoices are paid when they should be? If you deal with invoice settlement in-house then you need to ensure that you have a clear strategy and discipline to collect your cash.
There are two main reasons your invoices are not paid on time:
- The debtor doesn’t have any money;
- The debtor doesn’t want to pay (or at least has prioritised another creditor over you).
Both of these are situations are unacceptable and must be addressed if you want to grow the revenue in your business.
The recovery of business debt can be frustrating and time consuming but it is part and parcel of being in business. To help you quickly get to grips with the subject, here is an overview of the process of collecting overdue invoices and business debts:
1. Friendly phone call
“Hello, you have not paid invoice number 1234…”. Don’t rely on email and post. Picking up the phone is a far more effective way of getting a response because it personalises the situation.
2. Letter Before Action & Final Demands
The LBA (Letter Before Action) tells the debtor what you want and why. This normally includes details of any outstanding invoices and gives a formal warning that if payment is not received by the date shown (usually within 7 days), court proceedings may commence.
The threat of court action from a professional third party often results in payment. If debt collection is a headache for you, it is even worse for the debtor.
3. What if the debtor doesn’t pay the full amount?
One of the reasons people or businesses do not pay their debts is that they do not have the money to do so. Find a creative solution – a debtor may agree to pay in installments, or re-negotiate another of his contracts to release funds for your benefit.
An external debt collection agency may march on and issue court proceedings without investigating the reason for non-payment. Be careful, you don’t want to lose the debt and the customer.
4. Issue Court proceedings
You can issue your claim via the County Court Business Centre (CCBC) to ensure Claim Forms are issued promptly. This is, of course, to your benefit.
In the small proportion of cases that are defended the case will be listed to be heard by a Judge in the County Court. At this stage, you may want to consider consulting a solicitor. In high value claims the loser usually pays the winner’s costs, so caution is sensible.
If the defendant does not reply to your claim, you can ask the court to enter judgment ‘by default’. That is, make an order that the defendant pay you the amount you have claimed because no reply has been received.
6. After Judgment
The debtor has 28 days to pay the Judgment debt otherwise a County Court Judgment (CCJ) will be entered onto the County Court Judgment Register.
A CCJ stays with the debtors for 6 years and may hinder any credit applications during this period. This is one of the reasons debtors are eager to settle their debts once claims have been issued. Costs of getting your judgment are borne by your debtor.
If the debtor does not pay you after you have got your judgment then you can enforce the judgment. The Court office will give you the relevant forms to complete should you need to do this.
This process may include:
- The use of Bailiffs and High Court Enforcement Officers (formerly known as Sheriffs)
- Charging Order (if the debtor owns real property)
- Attachment to earnings (if the debtor is an employee)
- Third Party Orders (if the debtor is owed money from someone else)
- Getting the debtor to Court for questioning.