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What options are available when a customer will not pay my invoice?

When customers don’t pay your invoices it can cause serious cash flow problems and ultimately lead to irreversible financial issues if not addressed. There are a number of actions you can take, however, to ensure your business isn’t compromised to the point of insolvency.

Legal action is typically a last resort, but if you’ve already sent several reminders that have been ignored, these are some of the steps you can take to recoup your money.

Debt collection agency

Chasing debts is a stressful and time-consuming process, so using a debt collection agency can help to remove some of the pressure and increase your chances of recovering the debt. Debt collection agencies charge a fee, but this isn’t generally paid until the debt has been successfully recovered. Reputable agencies should do so in an ethical manner, and depending on the amount owed, you may be able to assign the debt to the agency in full.

Letter Before Action

Sending a letter before action can motivate your customer to pay quickly, before court action commences. Essentially, this letter sets out the amount they owe, including any interest applied, the deadline for satisfying the debt, and the fact that legal action will commence if the money is not paid.

Small Claims Court

You can use the County Court small claims procedure to recover debts of up to £100,000 (including interest):

  • A Small Claims Track is available for debts up to £10,000
  • Claims between £10,000 and £25,000 are placed on the Fast Track system, as are those between £25,000 and £50,000 for non-complex cases
  • A Multi Track procedure also exists for complex claims  

If the court rules in your favour and your debtor still does not pay, a County Court Judgment (CCJ) will be issued against them. This formally records the fact on their credit file that they haven’t paid a debt, making it difficult for them to obtain credit or borrowing in the future.

Statutory Demand

A statutory demand is a formal demand for payment that can be issued when a debt owed by a company exceeds £750. In the case of an individual customer, the debt must be £5,000 or more before you can send a statutory demand.

Statutory demands are often used as a precursor for winding up a company, or before petitioning for an individual’s bankruptcy, but the debt in question must not be in dispute. The recipient has 21 days to pay in full, or arrange a repayment plan.

Different types of enforcement action to collect debts

A number of different enforcement actions may be available if your debtor still refuses to pay. These include:

Bailiffs

You can ask the court to appoint bailiffs to collect your debt via a Warrant of Control if the County Court Judgment remains unpaid. County court bailiffs will visit your debtor and attempt to make a ‘controlled goods agreement,’ which involves creating an inventory of assets that may be seized and later sold at auction to repay the debt. The debtor has seven days to either pay or arrange an instalment plan with the bailiffs.

Attachment of earnings order

An earnings attachment deducts a regular sum of money directly from your debtor’s wages, which is then sent to a collection office and on to you in repayment of the debt. If your debtor is on a low wage, however, the court may not grant this type of order.

Third party debt order

A third party debt order freezes your debtor’s bank account to allow repayment of the debt. It only applies to the account balance on the day the order takes effect, however, so timing is crucial. Your debtor won’t receive a copy of the order, which prevents them withdrawing the money from their account.

Charging order

A charging order places a charge on one or more of your debtor’s assets, usually property or land, but it can also be placed on other investments. This type of order doesn’t force the sale of their asset(s) - it protects the money owed to you, and ensures the debt is repaid whenever the asset is sold in the future.

Winding up/bankruptcy petition

If your debtor is a company and the debt exceeds £750, you can petition for their winding up if the debt isn’t in dispute. For individual debtors the threshold is £5,000, whereby you petition the court for their bankruptcy.

For more information on collecting outstanding payments and reducing the likelihood of bad debts in your business, contact the team at Begbies Traynor. We are the UK’s largest professional services consultancy and provide reliable, unbiased advice. Working from over 50 offices nationwide, we can offer free same-day consultations to quickly establish your needs.

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