Late Payment of Debt

There are a number of options for the disgruntled creditor. The best answer is to keep a tight rein on accounts and agree a maximum level of debt with the customer. This may be easier said than done, of course, especially with a large or important customer.

Another option is to agree a strict payment deadline at the beginning of the business relationship. It may also help to amend your standard terms and conditions to provide you with the most favourable terms for payment should problems arise.

Where such procedures are not in place or where they are not followed, there are other means to recover outstanding money.

The most important element is to open a line of communication with the debtor, either on your own or through a  third party such as a solicitor who has the benefit of specialist knowledge as well as a fresh and objective view of the situation.

It’s vital to ask “what are the debtor’s means and can he practically afford to pay the sums owed?”. The last thing a creditor wants is to expend valuable time, effort and money on attempting to recover a debt only to find out that the debtor cannot afford to pay. If he is forced into liquidation the best a creditor can hope for is a few pence in the pound.

Sometimes a pragmatic commercial approach has to be taken and a repayment schedule agreed to with the debt paid off over a period of time.

Where a negotiated settlement is not possible, the issue of court proceedings and statutory demands may be considered.

The issue of interest is most commonly addressed at this stage. Standard terms and conditions may make provision for the payment of interest; without such terms the Late Payment of Commercial Debts (Interest) Act 1998 provides the creditor with a statutory right to claim interest at eight per cent above the base rate plus fixed recovery costs depending upon the amount of the debt.

Where a creditor wishes to pay a premium and hand over responsibility for recovery, a factoring agreement may be the most sensible option. A factor agrees to take on responsibility for the debts and immediately pays you a percentage of that which is owed (commonly 75 per cent); in return the factor will pursue the debt and any sums recovered will be his.

There are a number of options for the recovery of debts, but many are just not commercially practical.

Much depends on whether there is an existing supplier relationship to be salvaged, the financial status of the debtor, the creditor’s priorities, the size of the debt and whether the debt is contested or not.

* Ursula Collie is a Partner of Blackett Hart & Pratt in Darlington. For more information, contact her on (01325) 466794.