Expert Advice - Business Monthly - January 2011

Q: I run a small to medium sized business and have found in the current economic climate that a number of clients are either extremely slow in paying their invoices or are hoping to avoid paying altogether. This is having a hugely detrimental effect on the business’s cash flow. What options are open to me to recover these debts?

A: When faced with a bad debtor the first step you can take is to contact them personally. Often a telephone call and an informal arrangement of payment terms can solve the problem. A follow up letter to confirm any arrangement is also a good idea. There always needs to be a balance between maintaining relationships with good clients and ensuring you get paid.

If there is any doubt about the ability or willingness of the client to pay it is imperative to take action quickly. If the debt is under £2,000 you can go through the Small Claims’ Court. This does not require a lawyer and you might not even have to go to Court. The Small Claims’ Court office will provide you with a form to complete and will then serve it on the debtor for you. If the debtor does not dispute the claim a decree will automatically issue after about 6 weeks.

Utilising a lawyer will normally ensure the debtor takes the matter more seriously. In addition a lawyer is best placed to move quickly to secure recovery of the debt through formal court or insolvency proceedings. Outside the Small Claims’ Court most legal fees you incur will be added to the debt.

Do not delay in chasing bad debtors. Many will pay those who act first. Although it costs money to employ a lawyer it is cost effective to allow them to recover bad debts whilst you get on with running your business.