You get to the end of your credit control procedure and you still have some unpaid accounts, so, what are the options?
Is your customer giving reasons for not paying?
Sometimes things go wrong or your customer has a complaint, rightly or wrongly. So, the first question is whether or not they have a genuine complaint.
There is a good reason
If your customer has a good point and you can’t sort this out through negotiation you should consider Alternative Dispute Resolution (ADR), mediation being the most common form of ADR.
There isn’t a good reason or the debtor doesn’t respond
If your customer is unresponsive or the points raised are not good reasons for failing to pay, your options are as follows:
• Letter before action
You will need to start with a letter before action. This is a letter telling your customer that the next step will be court proceedings, if the matter is not resolved. Court rules give details of the information that should be given in the letter. From October, there will be special requirements for a letter before claim to an individual, including a sole trader.
• Court action and default judgment
If you start an action and your customer doesn’t file a defence you will be able to get judgment in default of defence.
• Court action plus summary judgment
Your customer may file a defence but the reasons they give for not paying may not be good ones. In this case, you can make an application for the court to decide the case on paper (an application for summary judgment). An application for summary judgment is quicker and cheaper than going to full trial.
• A defence is filed
Sometimes an unresponsive debtor will file a defence that raises issues which can’t be dealt with by summary judgment and would need to go to trial. In this case you should again consider ADR, if you can’t resolve this through negotiation.
Provided the debt is undisputed, then, as an alternative to a debt claim you could consider the threat of insolvency. If the debtor is a company, the debt just needs to be at least £750 and you don’t have to serve a statutory demand. So, the threat of insolvency proceedings can be very effective. Click here for more information.
For an individual, the debt needs to be at least £5,000, so insolvency is only an option for higher debts.
Is chasing late payments getting in the way of your other business priorities?