How To Improve Cash Flow & Why Learn To Use The Courts
THE EXTENT OF THE PROBLEM
The extent of late payments is huge. Dun & Bradstreet produced a report titled "Small Business. Big Opportunity. The challenges and prospects for UK SMEs”. The data goes back to 2016 but is still relevant today, even more so given the effect of Brexit and the pandemic. The research identified the following:
- SMEs had an average of £64,000 owed in late payments
- 11% of SMEs are owed between £100,000 and £250,000
- 15% of SME owners are using personal savings to cover the shortfall from late payments
- 36% of SMEs don't credit check any customers
It is important to have good and effective credit control procedures. Part of those procedures needs to be how to take effective action if statements, reminders and calls do not work.
Understanding what steps to take is key and that is where we will help by teaching you how to use the courts to recover payment of overdue invoices.
The knock on problem of money not coming in, is that it can affect your ability to pay your own suppliers, bills and even paying yourself. Ultimately, paying suppliers late or not at all can result in them pursing you through the courts or cease supplying you. If the money isn't coming in quickly enough, it could lead to insolvency.
Since the pandemic, the insolvency courts have restricted the ability of creditors pursing debtors, with winding up petitions stopped until 2021. However, in the stats for 2019, it showed a worrying number of businesses and individuals entering insolvency processes such as bankruptcy or liquidation.
What Are Your Options In Recovering Payment Of Unpaid Invoices?
Once you have exhausted your internal credit control procedures and the invoice is still unpaid or disputed, you can either decide to take no further action, continue to chase as you have been or escalate matters towards collection.
Debt Collector / Debt Collection Agency
These are not court Bailiffs or High Court Sheriffs. They have no power to compel anyone to pay anything. Their success is largely down to persistence and the misunderstanding by debtors of the powers (or complete lack of them) that debt collectors have.
Any debtors who know the debt recovery process will tell debt collectors to go away.
Typically debt collectors get paid by taking a percentage of monies recovered. Some work on a no recovery, no fee basis.
Debt collection services are a common and simple service provided by solicitors. It is often the more junior employees who carry out this kind of work. Typically it is work carried out be legal assistants, paralegals or trainee and junior solicitors.
A firm of solicitor ought to be able to deal with the debt recovery process competently from start to finish. However, it may be a costly process, depending upon what steps have to be taken. Generally, the letter of claim ought to be a fairly cheap step. The cost will tend to increase more considerably, if you need them to prepare court proceedings, enforce a judgment or to deal with a defended claim. You can deal with all three yourself through our courses.
Using a firm of solicitors will generally be a more expensive process and if you have a lot of invoices to collect, could become very costly.
Do Your Own Debt Recovery
You do not need to use a solicitor to go to court.
Many businesses and individuals use the courts to recover payment of invoices or to resolve disputes. A lot of those who do not use a solicitor, use the courts without the knowledge of the court process, the common mistakes people make and what to expect generally.
You can use the courts with confidence once you know what to do, which is why we provide our training.
Factoring / Assignment
We do not provide financial advice so will not stray into this too far. However, it is possible to "factor" invoices to a factoring company. In short, this means that the factoring company pays you a proportion of the invoice amount upfront and then the factoring company recovers the money from the customer. If payment is received by the factoring company, it keeps its cut. If it is unable to recover the money, you have to pay the factoring company back.
It is possible to sell (technically assign) debts owed to you, to someone else for them to pursue. Generally, companies that buy debts will usually offer to pay very little for them. Expect to have to write a lot of the invoice amount off.
BENEFITS OF CARRYING OUT YOUR OWN DEBT RECOVERY
All businesses want to know how to improve cash flow. However, not many business owners have the confidence or knowledge how to make a claim in the courts and carry out their own debt recovery. Learning how to do the work yourself is a practical skill that can give your business a crucial financial advantage.
There is no great mystery in carrying out your own debt recovery work once you know how. Our courses teach you how.
Also, you should be able to deal with your own small claims matters (generally speaking, those claims of a value less than £10,000) when a claim is disputed. The small claims court is intended to allow people and businesses to resolve disputes without having to use lawyers. You can use a lawyer for a small claims court claim if you want but you are very unlikely to be able to recover the legal costs you incur over and above court fees, capped expert report fees and witness expenses.
Cut Your Legal And Debt Recovery Costs
One of the main reasons to carry out your own debt recovery, is the cost saving you will achieve.
Whilst many legal services can be offered for a fixed fee by solicitors, litigation is different as it is difficult to predict how long a particular claim will take to get to trial. Litigation can be expensive and unpredictable. Remember that in small claims matters, you are unlikely to recover your legal costs regardless of whether you win or lose.
For a fraction of the cost you may pay a solicitor, we can teach you to do the work yourself.
Please see our pricing here and the comparison to the cost of using a solicitor or debt collector.
By keeping control of your own debt recovery procedures you will be alert to overdue invoices and can take swift action straight away, without the delay of instructing your solicitor.
With the best will in the world, solicitors can only manage so much work and so many clients in the course of a day. Your case is your priority but is it also that of your solicitor?
By keeping control of the litigation yourself, you don't need to be chasing updates or worrying about whether everything is in hand. The file will be on your desk and under your watchful eye. Once you know how to make a claim, you will be able to run it and diarise the matter ahead.
You Know Your Customer
You know your customer better than your legal team which is an advantage when reviewing how to improve cash flow.
You are best placed to enter into negotiations and strike a deal, rather than litigating to trial. By keeping control of the matter, you may be able to reach a compromise and maintain your relationship with the customer.
Knowing how to make a claim is important but equally important is knowing the options to settle a claim without the need to go to trial.
Knowledge Of The Court System May Help When Dealing With Your Solicitor When Dealing With Higher Value Matters
If you already have a basic understanding of the court system, your dealings with your solicitor will be more productive when dealing with higher value claims.
In claims where costs of the litigation are at risk (such as fast track and multi track claims) it makes commercial common sense to instruct a solicitor to advise. In fast track and multi track claims (generally speaking, those claims of a value of greater than £10,000), the court can order that one party pay the other's legal costs. Those costs could be significant in value.
The changes to funding and cost rules in April 2013, mean that the amount of costs recoverable in litigation are likely to be reduced considerably and the courts will be imposing budgets at an early stage to try to stop costs from becoming disproportionate. The more you can do to help the solicitor to prepare your case, the greater costs savings you can achieve.