However careful you are about checks and controls, trading with other businesses on a credit basis relies on goodwill and always carries a certain amount of risk. So, what if the worst happens and one of your customers defaults on a debt? The good news is that there are several options available when chasing a commercial debt that you wouldn't have if you were dealing with an individual.
1. Recover your costs
The Late Payment of Commercial Debts (Interest) Act gives you the statutory right to claim interest on an overdue debt, as well as compensation for costs you've incurred in debt collection. You simply add these to the value of the outstanding debt.
The interest rate you can levy is fixed at 8% above the Bank of England base rate. However, you can't claim this statutory rate of interest if there’s a different rate specified in any contract you have with the debtor.
As for your debt collection costs, the amount you can charge ranges from £40 for a debt of up to £999.99 to £100 for a debt of over £10,000. You're entitled to charge an amount over and above one of these fixed sums if you can prove that it doesn't cover the reasonable costs of recovering the debt.
2. Impact the debtor's credit rating
If you take legal action against the debtor and obtain a County Court Judgment (CCJ), this will be logged on their credit file and will seriously impact on their ability to borrow money. The threat of this happening can be highly persuasive. Many debtors choose to pay up rather than run the risk of compromising their borrowing power.
3. Send in the bailiffs
If you've been granted a CCJ for £600 or more and the debtor still hasn't settled, you can instruct High Court Enforcement Officers (HCEOs). They have the power to access land and enter buildings without invitation to obtain payment of a debt in full. If the debtor still refuses to pay, they can seize goods and/or assets to the value of the debt.
4. Go for insolvency
If the debt is for more than £750 and is undisputed, you can petition the Court for a winding-up order. Before doing so, you would usually send the debtor a 'statutory demand'. This will give them 21 days to either settle the debt or agree a payment plan. If they fail to do either, you can then go ahead with filing the winding-up or bankruptcy petition.
If your winding-up petition is successful, the company’s assets are sold, any legal disputes are settled, the company collects the money it’s owed and funds are paid to you and any other creditors.
A word of caution; making a company insolvent is the nuclear option and should be a last resort. Remember, the business may not have cash or saleable assets to cover its liabilities, so you might not get all the money you're owed.
5. Use a debt collection agency
Putting your overdue debt in the hands of a specialist can be a smart move. Most businesses will prioritise payment of a debt if they receive a letter from a debt collection agency.
What's more, you don't have to wait until the going gets really tough to bring in the professionals. Most debt collection agencies offer early intervention and debt management services with a 'softly-softly' approach that won't risk damaging your client relationships.
How Redwood Collections can help
At Redwood Collections, we're experts in debt collection and we have a long track record of success. You can rely on us to explore every avenue on your behalf, from gentle persuasion to Court action or insolvency. What's more, we'll always act with tact, integrity and professionalism to ensure your reputation is protected. With Redwood Collections on your side, your business can Grow Stronger.
Get in touch at info@redwoodcollections.com
