ExEcutivE REPORt
Money doesn't always lead to happiness
What can you do when invoices aren't paid on time, or have to be written off? Nathan Talbott, partner at Wright Hassall LLP, considers the options.
T
he UK fares relatively well across Western Europe in terms of the
proportion of invoices settled on time – some 61%. Not quite as good as Austria (72%) or Sweden (68%), but that figure means that 39% were late and of that number around 13% was written off as uncollectable.
The worst place to do business is the Netherlands, with just 47% of invoices paid on time and a staggering 21% of invoices having to be written off. Nevertheless, the problem for firms, when dealing with late payments, is what to do to speed up the process.
In some cases, the lack of documentation doesn’t help. Whether a signed contract, proof of delivery or terms and conditions, it can be difficult to recover payment without proof of the debt.
For lawyers, a good contract goes to the core of excising delays. It’s recommended that firms insert two key provisions into their contracts – a right to suspend further deliveries if there is no payment and the terms have been exceeded; and that a contract can be terminated if payment is late.
These terms are critical, as the law does not provide a right to cease supply when payment is late – even if a company is likely to be insolvent, suppliers are generally not entitled to stop performing the contract and if they do, the customer would be entitled to terminate the contract itself and claim compensation. By extension businesses who put clients ‘on stop’ are playing a dangerous game if not permitted contractually.
Other useful clauses to include are that the undisputed part of any invoice should be paid regardless; there is no set-off so a customer in dispute must pay without deduction and then bring a separate claim; limitation of liability and exclusion of indirect and consequential losses and ideally loss of profit too; and a right to claim interest.
The key to getting paid is knowing who the customer is. Credit checks are vastly underused; businesses should be routinely
checking existing customers as well as new customers, and a useful tool for this is an account opening form. Businesses can use it to gather all the information they need at the outset, including contact details of key personnel and company registration numbers, while also getting the customer to agree to and sign the terms and conditions of sale.
Do-it-yourself? Dealing with recalcitrant debtors isn’t easy, but the process can be started in-house without the need to call in the professionals. Ideally, creditors should make contact and try to agree a repayment structure that fits. But creditors should remain firm and not become a pushover – they should insist all new orders are paid up front but allow debtors to pay the outstanding amount over a period of time.
Another tip is to record payment run cut-off dates. Many businesses process invoices in the month that they are received so changing when invoices are sent out can make a considerable difference.
A final notice letter on company letterhead is another weapon to consider. There are many templates to choose from and letters should be delivered with proof of postage or with email delivery and read receipts. The letter should restate what is owed and that it must be paid immediately or by a set date.
Bringing in the professionals Where debts are disputed and have not been resolved within 2-3 months, then it’ll probably have to go legal for the impetus to resolve it. However, the advice is to assess the risk and keep all the evidence.
As to cost, solicitors either work on the basis of hourly rates with estimates, fixed cost, or on a no-win no-fee basis. Many recovery agents operate on a success fee basis, taking only a minimal administration fee. Further, under the Late Payment of Commercial Debts (Interest) Act, businesses have the right to compensation and statutory
interest on any overdue invoices to help cover debt collection costs. But few businesses take advantage of the Act or their own terms and conditions, which entitles them to charge interest until the debt has gone ‘legal’.
But if the matter is being handed on, time is of the essence; leaving a debt too late can mean that other firms have already started their own legal action leaving a creditor at the back of the queue or worse, a client that has become insolvent.
Often, though, a first stage legal letter might just do the trick. But some seasoned late payers won’t pay up without further action. Taking the claim to court may be the last, and only, option. But once judgment is obtained then the games really start; some debtors don’t realise the power of a county court judgment. It isn’t just a black mark against a company’s credit rating, it really does open up the doors to what a creditor can do to get the money it’s owed.
In summary Ultimately, the earlier a business takes action to recover an overdue invoice, the better chance there will be of avoiding a bad debt. One thing is certain - sticking one’s head in the sand isn’t going to make a problem go away. n
22 Executive Hire News - June 2022
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