Commercial Debt Recovery FAQ
Making the decision to begin the debt recovery process can be difficult for any business, particularly if you have had a long relationship with the debtor.
Before you begin the process, it’s worth reading our frequently asked questions.
This is a how long is a piece of string question. You have to consider whether the time, energy, and money spent recovering the debt is justified by the amount you are owed. Sometimes, it could be financially reasonable to write off debts that are less than £100, however this could set a precedent for the future. We would always recommend finding out why you haven’t been paid, for example if your customer is unhappy with the goods they’ve received, you may not be able to recover any money until you have resolved that first. Jarmans always recommend seeking legal advice before beginning any kind of debt recovery process.
The first thing to remember is that you are running a business and that a client who doesn’t pay on time may not be as valuable as you think. The first step of the debt recovery process is to send a Letter Before Action (LBA) which sets out what is owed to you and gives a timescale to pay it in. However, it’s a good idea to discuss the situation with your debtor before you begin the debt recovery process to see if there is any way that you can reach an agreement.
If your customer has cashflow problems, it may be worthwhile negotiating some kind of compromise with part-payment and a rescheduling of the debt. This could help you to maintain your relationship whilst also ensuring you get paid. Also, if you do have to begin a legal claim, it shows that you have attempted to resolve the situation fairly.
After 30 days you are entitled under the Late Payment of Commercial Debts (Interest) Act 1998, to charge interest at the Bank of England base rate plus 8%. You can claim for debt recovery costs, which start at £40 per invoice. If your customer has cashflow problems, it may be worthwhile negotiating some kind of compromise with part-payment and a rescheduling of the debt. This could help you to maintain your relationship whilst also ensuring you get paid. Also, if you do have to begin a legal claim, it shows that you have attempted to resolve the situation fairly.
In a perfect world there would be a written agreement, purchase order and delivery note, however you essentially need proof that the customer requested your service or product and that you delivered it. Keep hold of all correspondence such as emails and texts as these could be used as evidence for any legal proceedings.
No matter the size of your debtor, from a small business to a big multinational, you should always try to follow the same steps and seek legal guidance.
Express terms are the terms that have been expressly stated by both parties in the drawing up or agreement of a contract. Implied terms are implied by the court and are based on usage or custom, previous dealings between the two parties, the intention of the parties, common law, and statute.
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