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Cash Flow Management

What if your clients will not pay?

Despite best efforts by businesses to implement credit management policies and efficient collection methods, some customers just will not pay up.

Getting a county court judgment can be the easy part. For further information go to www.courtservice.gov.uk , where in the Forms and Leaflets section you will find a section on Small Businesses and Commercial Debt, where useful leaflets can be downloaded.

Sadly, some businesses find that despite going to the expense of winning a judgement, the debtor still refuses to acknowledge calls or letters.

It is advisable to check the credit worthiness of the debtor, since non-payment could be an indication of financial difficulty. if the debtor cannot afford the payment there would appear to be little point in incurring further costs chasing the debt.

The creditor could take enforcement proceedings, they offer no guarantees however.

4 Ways to make customers pay
  1. Oral Examination
    Oral Examination. This is an application to court (costing £40.00) for the debtor to be summoned to court to be examined on oath as to the financial means of the company.
    The best person to make the application against would be the person in the company having responsibility and knowledge of the finances.

    Failure to attend the examination can lead to imprisonment for contempt.

    The difficulty for the creditor is in determining whether the debtor is being truthful.

    The information obtained can be used to determine the most suitable method of enforcement or whether its even worth the"powder and shot".

  2. Statutory Demand
    A creditor could serve a Statutory Demand on the company. This is a precursor to Winding Up proceedings (suitable if the debt is £750.00 or more). If the company is solvent, this is more likely to result payment as it is unlikely that the company will wish to be wound up is it is solvent.

    Failure to comply with a Statutory Demand is an automatic ground for winding up so if this does not bring about payment, it's likely the company is insolvent in which case it's probably not worth wasting the money and issuing winding up proceedings.

    A statutory demand is free, save for the cost of preparation. Most Solicitors will have a preprepared form which they will simply fill in.

    Technically, it should be served personally, not by post.

  3. Bailiff Action
    If it is decided to enforce bailiff action, the creditor should consider transferring the judgement up to the high court so that enforcement is by a Sheriff Officer. They are generally more persistent and more effective than bailiffs, though they can end up costing more if they are unsuccessful.

  4. Late Payment of Commercial Debts [Interest] Act 1998
    In November 1998, the UK Government introduced legislation to give businesses a statutory right to claim interest from other businesses for the late payment of commercial debt. The UK was one of the first countries in the EU to introduce late payment legislation to help promote a culture of prompt payment.Amended late payment legislation will come into force in the UK on 7 August 2002 which will fulfill the UK’s obligations under the EC Directive on late payment and bring additional benefits to businesses.

    Your rights and how the changes to the late payment legislation will affect them
    All small businesses, with 50 or fewer employees, can use the rights given to them by the Late Payment of Commercial Debts (Interest) Act 1998 to claim interest retrospectively. The table below provides a brief summary of how the legislation works on sales prior to 7th August 2002
The earliest date from which a commercial contract can create a claim for interest under the late payment legislation Who can use the legislation
From 1 November 1998 Small businesses can claim statutory interest for late payment from large businesses and most of the public
From 1 November 2000 In addition to the above, small businesses can charge other small businesses statutory interest for late payment.

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improve your business cash flow
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the solution for owner managed businesses?
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are your clients credit worthy?
how to reduce business risk
effective debt collection
what if your clients will not pay?
the iva procedure
why you should pay your invoices on time
what is trade credit insurance?
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