Companies depend on the prompt payment of invoices and if a client has failed to pay an invoice it can cause serious cashflow difficulties. Invoices usually state a timeframe for payment. The timeframe can vary depending on the needs of a business and some companies provide for payment within 7 days whereas other companies provide 28 days for payment. When two companies enter into an agreement they are free to negotiate terms and this includes terms of repayment. For the sake of example let us say that you have provided services to a client and you raised an invoice for £25,000.00. You have tried to speak to the managing director of the debtor but they are not returning your calls.
It can be unusual to find that a once loyal client has gone ‘to ground’. It may raise concerns about the financial viability of the debtor company. If the debtor cannot pay you the £25,000.00 should you stop providing them with goods and services? This is an important question to consider especially if the debtor has a previous unblemished track record of payments. At this stage, it may be tempting to threaten court proceedings when the goods or services have been rendered and the client has failed to pay. Before writing the letter threatening court proceedings you need to bear in mind what your company is seeking to recover. Is your company seeking to recover:
1. The sum owed – £25,000.00?
2. Interest on the sum owed?
3. The legal costs in issuing proceedings?
4. The court fee if proceedings are issued?
It is often useful to go back to the contract to see what was agreed in the event of a dispute. Even if there is no contract you may be entitled to charge interest at the statutory rate. The current statutory rate is 8% above the Bank of England Base rate (currently 0.25%). For example, the daily rate of interest on £25,000.00 is £5.82. The prospect of being made to pay interest on the amount owing can be one way to incentivise late payers to pay.
When attempts at communication have been unsuccessful it can be worth instructing a solicitor to write what is known as a “letter before claim”. This letter will provide a set period of time for the debtor to pay and once the deadline has expired court proceedings can be commenced. These letters can result in the desired outcome and make a debtor pay. Firms of solicitors often offer fixed fees to write a “letter before claim” and it can be cost-effective if written correctly. If no payment is forthcoming from a debtor before the deadline expires then a county court claim can be issued. If a court claim is necessary then reference will be made in the “Particulars of Claim” to the content of the “letter before claim”. Often letters before claim are valuable pieces of evidence to prove that a claimant has been ‘reasonable’ in issuing proceedings against a debtor. It is for this reason companies often instruct solicitors to write the “letter before claim”.
Summerfield Browne Solicitors have expertise in commercial and intellectual property law and have offices in London, Birmingham, Oxford, Cambridge and Market Harborough, Leicester.
