bad debt

Don’t Let Your Business Fall Victim to Bad Debts

You can be sure your customer has invoiced and been paid by the main contractor but will he pay you? Bad debt incidents like this can hinder or even derail your business’s progress. You must defend your business and in situations as described above, often the best form of defence is attack! In normal times a vigorous credit control regime with statements, emails, phone calls and text messages will put you at the front of the queue of your customer’s payment run but even so a residual may still prove to be obstinate.

Good credit control is characterised by a combination of persuasion and coercion. Persuasion by regular contact, eventual coercion with the threat of legal proceedings will ensure all but the most stubborn or broke customers will pay.

When it comes to legal proceedings, check that your contract allows you to issue legal proceedings. Under short form construction contracts such as JCT you may be prevented from using the courts if your customer is in dispute in which case there will be an arbitration route for you to invoke.

Assuming there is no dispute or if the contract is not under a short form, you can start to prepare legal proceedings. You may instruct a solicitor to undertake this for you but that will incur costs that you will not be able to recover if your claim is under £10,000 even if you win, or if you eventually lose the case. So you may want to avoid that by having a go yourself. You don’t need a law degree.

If you are based in England & Wales, you can issue a County Court Summons online. Scotland and Northern Ireland have equivalent arrangements. To prepare, you need to issue a letter before action. A letter to a limited company is different to a letter to sole traders or private individuals. The letter to a company can be quite brief and give as little as 7 days’ notice, see suggested template . Whereas a letter to a trader or individual must be more conciliatory, urging the debtor to seek advice or negotiation, see template . This letter will almost always illicit a response. During the period of notice we recommend continued attempted communication to negotiate a settlement; jaw jaw is better than war war. Please keep a log or diary of all calls, attempted calls, messages etc. You may need this later.

Given no satisfactory response, the next logical step is to actually issue your County Court Summons. Click on County Court Website. You will need to register for which you’ll need your Government Gateway number. Once registered, click on Begin a New Claim.

The site asks you to complete a series of info boxes about you and your debtor, most of which are factual and straightforward. Then comes the bit about the debt, the amount outstanding. Optionally, if you are feeling arithmetical you can calculate the days outstanding and apply for interest at (£sum x 8%) x (days o/s ÷ s365) To calculate the daily interest rate just divide the total interest by the number of days. In the large rectangular box underneath give details of the debt by reference to invoices, measurements and anything else you wish to claim for. The boxes underneath is the total claim including interest. The site will calculate the court fee payable (which is recoverable from your debtor) and you’ll be taken to the payment process.

Four or five weeks after completion, if your debtor does not register that he intends to defend the claim, you will be entitled to claim for a judgment to be entered in default. This is also done on the Moneyclaim website and don’t forget to claim for interest incurred between issue and judgment. Once you have your judgment, scroll towards the end of this article for steps on how to enforce it.

If your debtor does register a defence the court will send you a copy together with a form for both parties to complete to confirm arrangements for the eventual court hearing. You must complete the form, send it to court and your debtor otherwise your claim may be struck out, similarly they must also or you can claim for their defence to be struck out.

The central court will then transfer the case to a local county court to be listed for a hearing and you will need to pay a hearing fee. Both parties will be asked to furnish the court and each other with further details, evidence and particulars about their respective positions.

When the eventual hearing takes place, each party will be given a slot to present their case and allowed to put questions to their adversary. The judge will probably also ask questions. Towards the end, the judge will give a brief resume before delivering his or her verdict.

If the verdict goes in your favour, you will be able to apply for costs, usually court fees, possibly some travelling expenses as well as interest up to the date of the hearing.

Thereafter your debtor has 28 days to make payment. If payment is not received you will be entitled to enforce the judgment, typically by bailiff enforcement. The county court in which the judgment was obtained can upon application and payment of a fee appoint a bailiff, though county court bailiffs are generally less effective than a High Court Sheriff’s Officer. If the judgment debt including costs and interest exceeds £500.00 you can appoint a High Court bailiff. The company we recommend are Pro-Serve based in North Wales click

In summary, if you are feeling aggrieved and don’t want to just walk away from a debt that is properly due to you, there is very little reason not to have a go yourself other than the considerable time investment that a defended claim is likely to soak up.

Please note: this article is advisory only, given without any responsibility or liability on the part of Multi-Hire Power Tools Limited.

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