How to get paid without going through the courts

Despite the recent upturn in the economy, collecting outstanding and overdue debt is still an big problem for businesses.

By Kieran O'Connor, Farleys.

Recovering debt without any unnecessary expenditure is especially pertinent to businesses following the increase in the Small Claims limit to £10,000, which prevents parties recovering legal fees from the losing party in cases with a value below this threshold.

These three simple steps can be taken to aid in the recovery of outstanding debt:

1) Profiling: An early distinction must be made between the “can’t pay” and the “won’t pay”. It is imperative to accurately profile the debt and the debtor at the earliest possible juncture. The financial circumstances of the debtor must be considered in order to decide what the most effective course of recovery action will be. There are a variety of websites and databases available free of charge in order to carry out some highly effective initial searches.

A company can often avoid unnecessary disputes surrounding debts by ensuring that it has an effective case management system and ensuring that its Terms and Conditions are up to date with current legislation. This can offer sufficient protection in the event of late or non-payment in terms of interest, arbitration and more complex provisions such as retention of title clauses.

2) Recovery Options: How you choose to recover your debt will be dependent on circumstance but typically there are three courses of action that can be taken. A 7 day solicitor’s letter can be a useful preliminary tactic in outlining the details of the debt and demanding the payment. Should this fail and the debt is not disputed in any way, a Statutory Demand can be issued, or if necessary the commencement of court proceedings to recover the debt.

Money Claim Online is a useful tool for companies to use when issuing a Claim Form themselves, especially for debts which fall below the Small Claims limit for recovery of legal fees. Interest payments and late payment charges can be added to the debt pursuant to the Late Payment of Commercial Debts Regulations 2013. In complex debt recovery it will be necessary to instruct a specialist commercial litigation solicitor to ensure the debt is recovered.

3) Enforcement Options: Obtaining a Court judgment is the easy bit. Many companies struggle to enforce the judgement in what is often a complicated procedure. The enforcement options that are available include ; execution against goods, third party debt orders, attachment of earnings orders, the obtaining of a Charge over property, bankruptcy proceedings (if an individual debtor), and Winding up Petitions in the High Court in corporate insolvency. Be warned - insolvency based options are often expensive and complicated and should only be used as a last resort. The courts’ view often is that insolvency should not be used merely as a debt collection method, but should be used instead as a remedy for the benefit of all creditors.