How to handle a bad debt and keep your customer, inc using little-known Government legislation.
I appreciate that getting a Debt Collection Agency (DCA) involved for the first time is a big step and a lot of people may have a negative stereotypical images about the industry. I mean, we are all 6 foot tall with tattoos right? I thought I’d run through a couple of helpful pointers on when and how to engage with a DCA.
Of course, you should have your own credit control procedure in place and have clear terms and conditions (with a Retention of Title clause added, if applicable). However, once a customer crosses the line in the sand, you need to take action. That line in the sand is completely governed by you and it'll vary client to client. So you have that client - yes, there is always one that crosses the line, so what can you do?
Well the sooner you take action the higher chance you have of getting payment and the options are simple - you either sort it out yourself or outsource!
I am a great advocate of outsourcing. I don't do any cleaning in my office, I'm not an IT expert, and HR is dealt with by someone far more qualified than me too! I have found out through experience that if you think it's expensive hiring a professional, try hiring an amateur!
However, I appreciate that you may prefer to try to deal with matters in-house, so here is a guide to your options:
1) Carry on ringing them and leaving messages
2) Carry on emailing them
3) Carry on getting nowhere apart from frustrated. Now you are taking more time & effort chasing this than focusing on what you are good at.
4) Rant on social media about your woes
5) Give them more time to pay
Start at 1 again!
Joking aside, you need to remain calm and professional throughout the process. Start by sending a letter (Google "Letter Before Action"). Give them a deadline to pay/respond. If you don’t get anything back you may then go to the Small Claims Court - also called Money Claim OnLine (MCOL). This will cost you money and take a bit of time but it lodges your debt with the courts and your debtor will receive court paperwork. There are several deadlines and timelines to adhere to and this may result in you attending Court.
So, having looked at the pain involved in that whole process, you may decide instead to outsource it to a professional, and that leaves you with a straight choice between your solicitor or a DCA. Both have advantages and disadvantages and I thought I’d just give you some pointers as to what to look for/ask about a DCA.
Much the same if you were looking to hire a builder, can you see examples of their work, in the form of testimonials? Do they have a website? Is the website friendly and informative? Are they members of any professional bodies? Do they have a generic phone number or a local one? Give them a call and speak to someone and ask for their advice. Do you like the sound of them, were they friendly? How much will they charge if successful? Is there a joining fee, or an escalation of fees for the more work they do? Do they apply charges under the Late Payment of Commercial Debts (Interest) Act? Are you tied into any contract? Can you see your case live via a portal? Can you give them one-off debts?
This piece of legislation is very much underused, partly because so little is known about it by the general business world. I have seen many a firm’s T&Cs explaining lengthy and complex calculations about late payments and the possible penalties that could be incurred. When all along, there is a piece of Government statute in force that covers this, and more importantly, should the matter end up in court, this is what the judge will look at.
Your own T&Cs, it could be argued, are unfair. There is no chance of that argument with this legislation! The Act came into force in 1998 but it has had several amendments over the years. A very pertinent change came into force in March 2013 which stated that reasonable costs could now be added to your claim. That means that if you do outsource your debt, those costs can be added. Also, if you need to utilise additional services, eg having a trace done, that could be added too!
So basically this Late Payments Act allows you to ‘fine’ another company for non payment on the agreed terms. For every invoice under £1,000 this 'fine' is £40 and those over £1,000 it is £70. There is also a daily interest charge of 8% above base which is calculated daily.
But why would I do that? Well, it shows that you are a professional company and one which won't tolerate late payment. Once your clients know you apply this, you'll be paid first. Doing this early will save you weeks of running around and false promises. Your T&Cs don't need amending, although good practice would dictate that you mention these terms on your invoices.
I understand that you may think you'll ruin your relationship with your clients, but let me ask you this, do you want non-paying clients who are using your money to fund other activities? As I said earlier, they are your clients and you know them best, but when the line in the sand is crossed you are now aware of your options and maybe have a Plan B.
If you have any questions don't hesitate to contact me.
Steve White, Thornbury Collections