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Debt Collection – Part 1: The Simple Debt

Written by Michael Coyle of Lawdit Solicitors on 23 April 2013

In this first part of our article on Debt Collection for small businesses we look at the options available for collecting simple undisputed debts and what additional costs you can claim without having to issue Court proceedings.

In Part 2 we will look at disputed debts and finally, in Part 3, we will look at the options for enforcing a Judgement debt (i.e. one ordered by a Court).

The advice in this article is based on the assumption that your aim is to get the debt paid quickly and cost effectively without the need to go to Court and perhaps to maintain the relationship once it’s paid.

In addition, I have assumed that:

  • You and the client are both in business and operate in England and Wales.
  • The unpaid sums are modest and there can be no possibility of any counter claims.
  • Both the invoice and at least one reminder have been sent.
  • There is a contract in place based on agreed terms and conditions.
  • The customer can and will pay.

It is good practice to send your invoices immediately upon completion of any work or supply of goods and I always suggest sending invoices both by email and post to ensure there can be no excuses. Invoices should clearly state the issue (taxable) date and the due date.

The Late Payment of Commercial Debts (Interest) Act 1998

This Act of Parliament implies into commercial contracts the right to claim interest for late payment provided you are acting in a course of business and it only applies to business-to-business contracts. This law does not apply to consumers. The key element of this law is that Statutory Interest arises by default once a debt becomes overdue – there is no need to issue proceedings in the Small Claims Court to enforce this.

If your contract with your customer does not include a substantial contractual remedy for late payment, then a qualifying debt carries simple interest at a rate set out in the Act. This rate is currently 8.00% above the Bank of England Base Rate.

Statutory Interest can be added to a debt from the day it becomes due to the day it is paid in full and can be claimed for up to 6 years.

Statutory Compensation

Whilst many people already know about the ability to add Statutory Interest, it is less well known that you can also add Statutory Compensation to every invoice that is overdue.

If the debt is less than £1,000 you can claim an additional £40 per invoice; for a debt of £1,000 or more (but less than £10,000) you can claim an additional £70; and for a debt of £10,000 or more, you can claim £100.

Although this compensation may not have much effect on larger debts, it can be very effective on low value invoices. Remember – this is a statutory right, you don’t actually have to inform your customers about interest or compensation – but you should as it will make them think twice about not paying you on time.

New legislation introduced in March 2013

From 16 March this year, new legislation came in to place which enables you to add reasonable costs of recovering late payments. This means you could seek to recover the costs of a Solicitor’s letter or the costs of a debt collection agency - but these costs must be reasonable – for example less than £30.

To take advantage of this additional legislation, the service must have been provided after the 16 March 2013.

In Part 2 we look at more complicated debt collection issues, for example where you are owed money but the debt is disputed and will need to consider the pros and cons of issuing a Court claim.

 


Do you have a question?

Michael Coyle is a Solicitor Advocate and Director at Lawdit Solicitors

UKWDA members qualify for discounted legal fees and free telephone legal advice*. For details please see member offers.

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