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Recovering your business debts – FAQ’s

recovering business debts

Collecting unpaid debts can be a stressful experience. Understanding where you stand and the best way to proceed in collecting these debts is vital for a smooth recovery. We are often asked similar questions by clients when it comes to debt recovery so to help you when it comes to debt recovery we have outlined some frequently asked questions below.

Q – I have not been paid. What do I do next?

A – The sooner you act, the sooner you will get paid. If you have exhausted your credit control procedure and still not been paid, it is time to send a Formal Demand. If it is a company that owes you money, you can demand payment within 14 days. If an individual owes you money, you can demand payment within 28 days. Make sure your Formal Demand is compliant with the Civil Procedure Rules, so that if you still are not paid you can proceed straight to court if you want to.

Q – Is it worth serving a Statutory Demand on someone who owes me money?

A – It depends if they can’t pay or won’t pay; and on the amount of the debt. If they won’t pay, or the debt is disputed, a Statutory Demand is not necessarily appropriate. It is often used as a debt recovery tool, although technically it should not be. If they can’t pay, you should ask yourself whether a Statutory Demand will make them pay, or just tip them over the edge into insolvency. Contrary to popular opinion, it is not a quick fix.

Q: Can I recover debts that are quite old?

A: Provided the debt is no older than 6 years, then it is certainly worthwhile sending a letter before action. If you do not receive a response, you may want to weigh up the commercial benefit of taking any further action before you do so.

Q: Can I charge interest?

A: It is not necessary for you to have notified your customer at the start of your relationship with them of your intention to charge late payment interest, and you do not have to refer to it in your contract. All that means is you cannot charge contractual interest. You can still rely on the Late Payment of Commercial Debts (Interest) Act 1998 to claim statutory interest – currently 8% above base, plus fixed compensation on a sliding scale. However, it is advisable [but not obligatory] that you amend your terms and conditions to refer to your right to interest on late payments, as this may act as a deterrent.

Q – How quickly will I get paid?

A- Most debts will be paid on receipt of a Formal Demand, or shortly after. Those that are not may need court proceedings. Depending on the amount of the debt, collecting it via final determination at Court can take anywhere up to 9-12 months, unless you settle sooner.

If you require assistance in collecting unpaid debts please contact a member of our Debt Recovery team on 0333 400 4499.

Lucy Tarrant