Practical Debt Recovery and Credit Control Tips and Hints

12th January 2021 / Sally Marshall / No Comments

Know your Client – they may be a Debt Risk! 

The adage Prevention is better than Cure equally applies in the world of Debt Recovery. If you do not have access or wish to incur the costs of a Credit Risk company such as Experian use some free or cheap on-line resources to establish the financial veracity of your potential customers and clients. 

  • Use Companies House to search against Limited liability companies.   This will enable you to access a subjects  Accounts, or whether the directors have a number of failed companies behind them. It details any insolvency position/history.  You can add the subject company to a “Watch List” enabling you to receive automatic up-dates on any filings they make. 
  • Disqualified Company Directors Register

  • Registry Trust Limited. Check a person or a business for an £8 fee for any Judgments, awards, fine defaults, Child Support Agency info and Liability Orders. 

Person – 

Business –  

  • Free Property Search Websites. There are a number of well-known, branded websites allowing you to browse all Properties including details of their sale or /rental histories. So when you are about to deal with new clients who are individuals, perhaps review their address and establish when they purchased their house, its value, then and now.   Has the value gone up or down? Will you be able to secure any debts owed to you, against their property by way of a charge, if they don’t pay your invoices?  
  • H M Land Registry – (£3 search fee per property, or £6 with property title plan). See the entries for the property – how many charges do they have registered and when – is it likely to be in a negative equity situation? (This includes details of court orders secured by a charge).

Review your Terms and Conditions of Business

Make sure your Business adopts the “late payment legislation to protect your positionThis refers to the amended Late Payment of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2002 and 2013.                   
This affords you the statutory right to claim interest, costs compensation and the other entitlements in the event any invoice remains outstanding outside of your standard payment terms. It is only available for Business to Business debts and may not be applied against individual consumers. If no term is expressly listed an invoice unpaid 30 days from its date is the default position. Invoking the legislation is not compulsory as it is for the supplier to decide whether or not to use the rights made available. It would however always be our advice to at least refer to it in your terms, to use at your discretion, if a irretrievably relationship breaks down. 

In addition to verbally informing clients/customers of your right to charge interest and/or claim compensation for debt recovery costs, as part of your standard payment terms, you should state clearly on all written communications, credit application forms, order confirmations, invoices and all contracts the following phrase : 
“We will exercise our statutory right to claim interest and costs compensation under the late payment legislation, if we are not paid according to agreed credit terms.” 

Interest is calculated at 8% above the prevailing base rate (currently a combined rate of 8.1% p.a. in total). This compares favourably with a standard contract rate of around 4% p.a.  or if matters were to go before a Judge you may only be awarded 3% p.a. for example. 

Cost Compensation for chasing unpaid invoices. The following rates can apply and make any debt recovery exercise far more cost effective. 

Size of unpaid invoice Sum to be paid to the creditor 
Up to £999.99 £40.00 
£1,000.00 to £9,999.99 £70.00 
£10,000.00 or more £100.00 

Retention of Title Clauses – can you claw back your goods sold to a client/customer in the absence of payment?  Ensure your standard terms make such provision, as you may at least be able to claw them back and sell them to a party more willing to pay for them. 

Such clauses are especially helpful if the other side are made the subject of Insolvency proceedings. Instead of getting back the ‘normal’ 2-3p in the £1 to the value of your invoice, on the conclusion of any liquidation/administration etc you may be able to claw back your goods for re-sale instead. (Please contact Graeme Weir to enquire about having your T’s and C’s reviewed and/or to obtain a template letter for your future use when engaging with any Insolvency Practitioners). 

Credit Control Processes  

Accelerate the period in which you implement more formal recovery measures, in the event your invoices are unpaid. 

Assuming your standard invoice payment terms are 28-30 days, consider sending out a polite email on invoice date plus 14 days to remind them that the invoice should be discharged within the next 14 days.  

On Invoice date plus 30 days send them a polite email to the effect that you cannot see that payment has landed and can they confirm that it has been released? 

On invoice date plus 37 days – beef it up – “sorry to see that account has not been discharged are there any problems”? Indicate that your company’s policy is to refer it to an external agency to recover if not discharged very shortly and you have no control over that mandatory policy. Make reference (if applicable) to the application of the Late Payment Legislation interest and costs compensations, in the absence of immediate payment. 

On Invoice plus 42 dues pass it over to a reputable Debt Recovery specialist. (Cough, cough)!  They have already had 3 notices by that point and cannot argue that you have acted prematurely. 

Use Final Notices from a third party, (please contact Graeme Weir at Kingsfords), to make your customer aware that matters have been escalated. These become part of your Credit Control processes involving the release of such Demands/Letters on your behalf for a nominal fixed fee per letter, every week/ fortnight/ month/ quarter customised to your requirements. 

Conclusion – re-educate your client/debtor 

Communication is key.  Always Email your debtor – “can I give you a call to discuss the account”?  Make keep non-threatening as you have the moral and legal high ground. 

If they reply positively – that’s good. If they fail to respond that also has an evidential value – of their being obstructive! Not a good look. They can hardly say they were upset with your goods or services at a later date, if they have not flagged any concerns previously.  

If you do speak, keep it light and fluffy and if they are stalling – use phrases like “how are we going to resolve this”. Put the onus back on them. 

After every conversation ping them an email – thanking them for their time and confirming what was discussed and agreed. Again if they pay up fine – if not such emails are great from an evidential perspective, as it undermines their credibility. Again keep the language low key. Remember it may end up being read by a Judge and you will score Brownie points if you are seen to have been reasonable and fair. 

Covid Challenges 

The government at the time of writing is introducing the Corporate Insolvency and Governance Bill which will afford businesses some protections as against the threat of insolvency proceedings being issued against them. The intended legislation will also reduce the threat of personal liability to directors for perceived wrongful trading, for a limited period whilst trying to rescue their businesses. 

Should you wish to discuss any issues arising please do not hesitate to contact Graeme Weir for a chat, free of charge. Graeme will welcome the opportunity to work with you in the collection of your outstanding debts. Similarly, if you are experiencing cash-flow issues and creditors are pursuing you, Graeme equally will be happy to discuss with you the approaches that you can adopt to seek to being made the subject of litigation.

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