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You may be aware of the recent Carillion crisis and the major implications raised by the collapse of this construction giant. With Carillion owing up to 30,000 businesses around £1bn in unpaid costs, this is inevitably having a devastating effect on smaller businesses who are facing a greater risk of financial ruin. So how can businesses learn from this should their company be owed money?
At some point, every business, small or large, will find themselves with a customer or supplier who doesn’t pay their bill on time, refuses to pay, or cannot afford to pay. Business owners will face tough choices whichever situation they come to be in.
Significant amounts of money could be lost simply because business owners are unsure of how to tackle this issue. How a business responds to the situation will not only affect the chances of collecting the debt, but possibly also the brand’s reputation.
To understand your options more clearly we have broken down the necessary steps in order to take a calculated approach to getting what you’re owed.
Understanding the Situation
Even if you personally know the client, or have built a great relationship with them, or they’re a brand new customer – you have the right to receive the money you are owed. However, you need to understand why this problem has occurred.
The most common three types of clients in this situation include:
Clients who create any excuse necessary to avoid paying
Disorganised clients (where payments are low priority) who make payments sporadically, and
Clients who always make a payment when due, but have found themselves in financial difficulty.
Disorganised clients, or those who have a history of making payments, are easier to manage and stronger communication with them could ease this problem. However, as a small business owner you need to identify those who simply don’t wish to pay and devise a plan to handle their behaviour promptly.
Your first natural inclination could very well be frustration, which is completely understandable, but try to stay calm and in control as your anger won’t lead to your customer or supplier wanting to cooperate with you.
Keep a Record of Everything
As a business you should be sending invoices to your clients that clearly identify the amount owed, payment due date and what the invoice refers to. If at the point the payment is due the sum remains unpaid, your business should respond with a polite reminder that the invoice has not been paid and request the payment as quickly as possible.
If the sum still is not paid, your business should write a formal letter requesting immediate payment. This should include a warning that your business has the right to take legal action should the client not make the due payment within a specified date.
Make sure you keep every record of your attempts to request payment. Should things proceed into a legal battle, your ability to provide evidence where you have taken the necessary steps to remind and encourage the client to pay, will be crucial.
Even when you speak to the client, make notes of the call and, if possible, record the conversation with the client’s permission. Keep a copy of any letters, save any emails sent to the client and responses you’ve received.
Educate yourself on Your Rights
When your client does not pay after repeated demands you have the right to terminate the contract, stop supplying or providing goods or services and to request the return of goods and commence legal proceedings to recover any debt. It is worth speaking with a specialist debt collection solicitor sooner rather than later, and educating yourself on your rights and legal options. This will allow you to be more confident when communicating with the client.
Taking legal action should be a last resort for businesses who are owed money, however, if a client still fails to pay, despite clear communication regarding the outstanding payment, then the next steps escalate the matter. Initially the solicitor will send a letter setting out the payment due and when it is due by; if that is ignored then the matter can proceed to court.
Could you consider a Settlement for less than you’re owed?
Depending on the circumstances of the business, it is worth considering whether the option to accept less than you are owed would be possible. If you have been chasing the client for 3+ months, then with every month it’s becoming increasingly unlikely that you’ll ever receive payment. Before taking any legal action, consider the circumstances of the client and the client’s history of payment. It’s possible that the client will make an offer to pay a lesser figure than that due, so you need to consider whether this is acceptable: a lesser figure is more likely to be paid than the full sum. It’s possible that the client’s offer might be too low and you may be able to negotiate the client to increase their offer.
For example, if you are owed £10,000 but willing to take £6,000, you will still win. At least it’s better than nothing at all, especially as for several months you had no knowledge about whether or not you’d ever receive any payment.
Engage a Debt Collection Agency
Hiring a collection agency can help take some of the burden off your shoulders. They are able to deal with all correspondence and the legal processes on your behalf. They could help you achieve the outcome you are looking for but also protect you from any legal problems. There are complex laws when it comes to debt collection and these matters are best handled by professionals, particularly if your business is owed a large amount of money.
Ensure you enquire about their fees upfront when looking to hire a debt collection agency. Many work on a ’’no win, no fee’’ basis, however they may well take a large commission if successful. In any case, you may require short term funding in the form of a business credit card to help you with managing any initial upfront costs. Make sure you fully understand the likely range of costs involved as, in some instances, the fees can outweigh the money to be reclaimed, especially if you’re unsure of whether your client will ever be able to repay what they owe.