When customers won't pay up

By: Wax Noor

Date: 8 April 2013

When customers won’t pay up/post due stamp on bill{{}}Chasing payment is part and parcel of running a small business, but when that tiny niggle becomes a major worry you need to know what power you have.

Before entering into any deal for services or products, having a written contract outlining payment procedures is essential. However, no amount of pre-emptive work can safeguard you from the non-paying client or customer.

So what can you do?

Step one

It might sound simple, but you’d be amazed at the power a solicitor’s letter has.

The first action a legal firm will take when instructed by a client on a debt case is to send a letter of claim to the other party - a recovery letter. It sets a specific timeframe for repayment, normally 28 days. And because it comes from a solicitor and not you, it will make the debtor sit up and take notice.

However, if there is no response within the stated time, a legal firm will lodge a claim. For amounts less than £10,000, this would go to the small claims court. Be warned, however, that if you instruct a legal firm at this stage, even if you win you will not get your legal costs back as the court considers the amount involved to be too small. For claims more than £10,000, you do get your legal costs back in the event of you winning the case.

Step two

So you’ve gone to court and the judge agrees that you are owed the money you say you are. Getting this judgment isn’t enough. The difficulty is enforcing it.

If more than £750 is owed, you can bankrupt the individual. However, this is a very serious action with long-standing repercussions for the person made bankrupt.

Another route is attachment of earnings. This would apply where an individual has made use of your company’s products or services and not paid. The court would send details of its judgment to this individual’s employer and every month, money is deducted from the employee’s salary until the debt is repaid.

Step three

There will always be a hardcore who do not pay up. The most common way a solicitor would proceed here is by instructing, on your behalf, a reputable debt management or debt collection firm. However, there is a third way.

An alternative approach is to instruct specialist agents. They can quickly recover the money owed to clients. Once a judgment is issued, these agents visit the premises or home of the defendant and get what is due.

This direct approach can be effective. I heard recently of an instance where agents visited an individual with a judgment against him. They asked him if the car parked outside belonged to him and what its value was. Within half an hour, a direct debit payment had been made to cover the debt. Getting your solicitor to instruct agents like these incurs a negligible fee and if they succeed, their fees are included in the overall amount owed.

Even the most successful small business can be crippled by non-payment, but swift and appropriate legal action, whether that’s a letter or court action followed up by a visit from reputable agents, can take that worry away. You’ve worked hard to build your business. Your solicitor should work just as hard to make sure you get what’s owed to you.

Wax Noor is a senior solicitor at Brilliant Law, which offers fixed price packages for SMEs covering debt management, recovery letters and county court claim forms.

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