If you’ve exhaustively chased a customer and there’s still no sign of a payment, it’s time to consider the possible legal action you can take. Sometimes, there’s simply no choice but to to escalate the situation further to ‘encourage’ a customer to pay.
There are no excuses for failing to make a payment. But there are cases when a customer becomes insolvent and simply doesn’t have the money to pay. In that case you should follow the points listed here when considering what action to take, including various legal steps you can take to recover what is rightfully yours.
Methods of Recovering a Company Debt
Try to Speak to The Debtor in Person
Sometimes a polite but firm call can be all that’s needed to get things moving. It’s always worth speaking to them in person before escalating the situation further.
Send Written Reminders, Keeping Record of Each
Send written reminders are periodic intervals, threatening legal action if you feel that’s a path you are prepared to go down.
Find a Debt Mediation Service
It’s worth remembering how expensive and time-consuming debt recovery can be, before skipping the opportunity for mediation. Mediators are professionals trained in the art of helping parties reaching a settlement. They are skilled negotiators and will actively seek the middle ground where you can make an effective deal.
Write a Letter Before Action (LBA) Final Warning
Writing an LBA generally has a powerful affect on debt recovery situations. This is essentially a final demand letter,which should confirm:
- exactly what monies are owed
- a clear timeframe (ie 14 days)
- what the consequences will be (ie. type of legal action) if they do not pay
- You can also state that any proceedings which follow will also include a claim for Court fees and costs where applicable
What types of Legal Action are Appropriate for Debts Owed a Business?
Once you have exhausted all the usual methods of trying to recoup a company debt, such as payment reminders, phone calls and third party collection agencies, it’s time to take your efforts up a notch.
At this stage you should send a letter to the non-paying customer to inform them of the legal action you intend to take, and give them a final chance to make the payment.
Daniel Draper, a commercial disputes partner at Farley Solicitors, says: “In so many cases, a single letter from a solicitor will make a business pay up. We outline that there is going to be legal action and talk about the statutory late payment charge, which is between £70 and £100, while interest on debt can be 8 percent above the base rate. We request payment within seven days and this normally works.”
If the customer still does not pay you can then take the following action:
County Court Proceedings
In many cases, the first step is to issue county court proceedings. This will give the debtor 14 days to pay you the amount owed or to make an arrangement to pay by instalments. The debtor has the option to dispute the debt, but if they are unsuccessful or they simply ignore the claim form, a county court judgement (CCJ) will be issued against them. This makes the debt official and allows you to take further action to recover the debt.
The different forms of enforcement action include:
Controlled Goods Agreement
A controlled goods agreement allows creditors to instruct a bailiff company to recover the debt on their behalf. If the debtor does not pay the debt, the bailiffs can take control of assets, such as machinery and vehicles, to be sold at auction to recover the debt. Read more on Controlled Goods Agreement.
In certain circumstances, as a creditor of the company, you can apply for a charging order to be placed on one of the customer’s assets. A charging order will usually be placed on buildings or land. Much in the same way as a mortgage, if the debt is not paid, the asset will be sold and the proceeds will be paid to the debtor to cover the debt
A statutory demand is a formal demand for payment from a debtor that sets out why the demand has been set, when the debt must be paid and the repercussions if the payment is not received. Once the statutory demand has been served, the debtor has 21 days to pay, or 18 days to apply to have it set aside. You don’t need a lawyer to make a statutory demand, but it must be sent in the correct format (form 4.1) and served in the right way to be legally binding.
As a company creditor, you have the power to ‘wind up’ a business if they ignore or fail to pay a statutory demand. This power can only be used for debts of more than £750. If the winding-up petition is successful, a winding-up order will be granted by the court and the assets of the company will be liquidated and it will be removed from the Companies House register.
Clearly, there are a powerful range of tools at your disposal to recover debts you are owed by companies that refuse to pay. For a free, no-obligation discussion of your particular circumstances, please get in touch with the Company Debt team today.