Recovering money owed to your business by another business can be a delicate process, and the most efficient and reliable approach depends on the circumstances. Here’s a step-by-step guide to help ensure the debt recovery process is as smooth as possible:
1. Send a Formal Reminder (Payment Reminder)
- Start with a polite, formal reminder that the payment is overdue. This can be done via email or letter.
- Include details of the invoice(s), the amount owed, the due date, and any late payment interest or charges (if applicable).
- Sometimes, businesses overlook payments, and a formal reminder is enough to prompt action.
2. Issue a Final Demand Letter
- If the initial reminder is ignored, send a final demand letter. This should be more formal and clearly state that if the debt is not paid within a specified time (e.g., 7 or 14 days), you will consider taking further action.
- You may also remind the debtor of any contractual or statutory interest they may owe under the Late Payment of Commercial Debts (Interest) Act 1998, which allows you to charge statutory interest (currently 8% plus the Bank of England base rate) and recover reasonable debt recovery costs.
3. Engage in Direct Negotiation
- Contact the debtor directly to discuss the issue. Sometimes businesses face temporary cash flow issues, and an **agreed repayment plan** can be a good compromise.
- Consider offering an incentive, such as a small discount for immediate payment, but only if this makes financial sense for your business.
4. Mediation
- If negotiations stall, consider mediation. A neutral mediator can help facilitate discussions between both parties to reach an amicable solution.
- Mediation is voluntary and not binding unless both parties reach an agreement. It can also help preserve the business relationship.
5. Engage a Specialist commercial debt recovery solicitor
- If informal efforts fail, consider using a specialist commercial debt recovery solicitor. These solicitors specialize in recovering debts and can sometimes succeed where other methods fail.
- While they will charge a fee they can relieve the administrative burden from your business and may be more persistent.
6. Statutory Demand
- A statutory demand is a formal demand for payment and can be used if the debt is over £750 (for a company). The debtor then has 21 days to either pay the debt or reach a settlement.
- If the debtor does not respond within 21 days, you can use this as a basis for starting insolvency proceedings to wind up the debtor’s company.
- Be cautious, though—this is a serious step and should be used only if you believe the debtor can pay but is choosing not to. A company facing insolvency could complicate your recovery.
7. Court Action (County Court Claim)
- If the debt remains unpaid, you can file a claim with the County Court. This is also known as issuing a County Court Judgment (CCJ) against the debtor.
- The process is as follows:
- Issue/ ask your solicitor to issue a claim using the online system called Money Claim Online or submit a paper form (N1 claim form).
- The debtor will have 14 days to respond to the claim.
- If the debtor disputes the claim, the case may go to a hearing.
- If they do not respond or the court rules in your favour, you will can apply for a County Court Judgment.
- If the debtor still does not pay after the judgment, you can take enforcement action. (see below).
8. Enforcement of a County Court Judgment
- If the debtor still refuses to pay after a court judgment, you can enforce the debt through various methods:
- Warrant of Control: Request that county court bailiffs seize the debtor’s assets to sell and cover the debt. This is not a particularly successful method of enforcement in the opinion of the writer.
- High Court Enforcement Officers (HCEOs): If the debt is over £600, you can transfer the case to the High Court, which allows HCEOs to enforce the judgment by seizing assets. They are generally more successful as they are paid ( their fees are added to the debt) by the debtor.
- Third-Party Debt Order: This freezes the debtor’s bank account, and the court can order the bank to release funds to you. It is dependent on there being any money in the account when the court sends the bank the order.
- Charging Order: If the debtor owns property, a charging order secures the debt against the property. You may then seek an order for sale, although this is more complex and would be unusual to get an order for sale. Your charge is therefore likely to sit there until the debtor sells or remortgages the property.
9. Consider Legal Advice
- If the debt is significant or you’re unsure about the best course of action, it may be worth consulting a commercial solicitor specializing in debt recovery such as TM LAW who can advise on the most appropriate steps for your situation and help ensure all actions are legally compliant.
Tips for Efficient Recovery:
- Act Quickly: The longer a debt is outstanding, the harder it can be to recover, particularly if the debtor is in financial difficulty.
- Document Everything: Keep detailed records of all correspondence, invoices, and communications related to the debt.
- Consider the Relationship: If you want to maintain a working relationship with the debtor, try to resolve the matter amicably before taking more serious legal action.
By following these steps, you can take a strategic and effective approach to recover the money owed to your business.
Contact Terry Maylin to discuss your debt recovery requirements.
