Wiping Away Debt

How To Collect Debt

Isn't it true that all businesses would appreciate it if their consumers paid their bills on time? You wouldn't have to waste time chasing down debts, allowing you to focus on running your firm. Debtors, on the other hand, will almost certainly always be present. Companies are allowed to issue invoices early, wait for payment, send emails to chase payment, and be certain that payment will arrive at the bank eventually. However, sometimes polite reminders, giving copies of bills, and sending monthly statements aren't enough to deal with customers who are stubborn about not paying.

So, what can you do to ensure that your company receives the funds it is owed? What methods do you use to collect debts from customers?

It can be difficult to decide how and when to take formal action, and there are a few informal options available to you before taking legal action. After all, the last thing you want to do is waste time and money in court for each invoice that is a few days past due. ​However, if you've exhausted the pursuing letters and phone calls, we'd like to share our experiences and recommendations on how to recover debt from a client, beginning with determining your legal standing on the issue.

The Debt's Proof

While the vast majority of business debts will not require legal action, it is critical to understand your legal rights and how to collect a debt effectively. To take a debt claim to court, you must have some type of proof that the debt amount you want to claim is owed. In most circumstances, an invoice, order, or bill copy will suffice, although you should generally have proof of:

  • the total amount that was billed and is now past due on your customer's account (i.e. you gave them a bill or invoice)
  • evidence that goods or services were delivered (i.e. delivery was made or the job was complete)
  • prior informal contact with the consumer informing them they owe money (i.e. texts or emails regarding payment)
  • a formal notice to the debtor in advance that legal action is being considered (i.e. a Letter Before Action or Letter of Claim)
  • You should be in a good position to launch legal procedures against the debtor if you follow the steps above and have the necessary evidence. If, on the other hand, the client disputes the amount owed, for example, because they believe the goods were defective, you may need to investigate and resolve the business disagreement before taking formal debt action.

    Legal Assistance for Non-Paying Customers

    Before seeking help with debt recovery, you should try informal activities including sending late letters, emailing the debtor's accounts team, and engaging directly with the debtor about payment. However, if you do decide to take a more official approach to obtaining money, you have a few options:

    1. File a debt claim on your own

    To make a court claim on your own you can use the Money Claim Online service. You should be aware that these are court proceedings, and you should be familiar with the 'pre action' rules as well as what will happen if you win your claim and obtain a judgment. Before beginning the claim procedure, make sure you read the Money Claim Online User Guide thoroughly.

    2. Hire a debt collector

    When you employ a debt collection firm, they will begin pursuing the debt and, in some cases, commence the legal procedure to recover the obligation through the courts. It's important to remember that debt collection firms don't have any legal authority over you beyond what you can do yourself. A debt collection agent will usually take a percentage of whatever debt they are successful in collecting to cover their costs.

    3. Hire debt recovery attorneys

    A solicitor should provide you some broad advise on the process and your chances, as well as a fixed price estimate. If their fees exceed the amount you're looking for from your consumer, you'd be better off pursuing another way. Experienced debt recovery solicitors, on the other hand, should have a fee structure that matches the amount you want to recover and the complicated issue, which can further make the issue more complex if the debtor decides to defend the claim or quarrel regarding the owed debt. In the vast majority of debt collection cases, the 'Letter Before Action' from the solicitor is sufficient, and the consumer will choose to pay their account rather than risk legal action.

    If legal action is required, a lawyer can explain the risks and provide advice on things like recovering court expenses and any statutory late payment penalties that may be imposed. The Late Payment of Commercial Debts Act, for example, may allow you to claim interest on top of the obligation (typically 8% above the base rate).

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