News

25/11/15
When business customers don’t pay their invoices and debts accrue it not only can be somewhat of a nuisance or headache but it can lead to very severe cashflow problems, particularly for small to medium enterprises (SME’s). Last month saw some changes to Statutory Demands come into force that can affect some previously effective methods of debt recovery for certain levels of debts.

The best outcome for businesses where debts are concerned is to ensure that matters are resolved as quickly as possible. Most customers do genuinely want to pay any outstanding balances and it is often possible to negotiate a resolution suitable for both parties. However, when that is not possible, there is a need for a business to secure repayment promptly and that includes sending a strong message that payment is required and will be enforced if necessary.

One useful tool in the arsenal has been the Statutory Demand. This instrument is the precursor to insolvency proceedings being brought against another individual, firm or company for bankruptcy or winding up. Given the extremely severe implications involved when this process is started it very often can focus the mind of a debtor and bring them to the table to work out a suitable resolution. The bark of a threat to issue a Statutory Demand in initial letters can be enough to prevent escalation of the matter. Most of the time, the bite of insolvency proceedings does not have to be used.

However, change that has been a long time coming is raising the threshold level for Statutory Demands. The level had not changed since the mid 1980’s when the minimum debt that could allow the issue of a Statutory Demand was £750. This was in need of a change given that inflation over the years means that this is equivalent to around £2,000 in today’s money. Otherwise, creditors could, and did, abuse the system and issue Statutory Demands for amounts that should be too small to be included. However, the increase to £5,000 goes far beyond that level and shuts the door on using this tool for many business debts that would previously have been within this range. Amounts of between £2,000 and £5,000 may not seem hugely significant but to some businesses they could make all the difference.

The loss of the Statutory Demand bark at these levels, and the opportunity to bite when needed, may well lead to more businesses failing to resolve matters earlier and being forced to take time consuming action in the County Courts to recover their debts where negotiations and methods of dispute resolution fail or the debtor does not engage with these. Costs pressures may also lead to businesses being unable or less willing to get the assistance of a legal professional putting pressure on the County Court system at a time when Court closures are in the offing and Litigants in Person already strain the resources, and sometimes patience, of the Courts.

The solution to account for the restriction of this tool of debt recovery, and in general, is to take steps early on and to ensure you plan:

• Make sure that your business terms and conditions are fit for purpose, up to date, regularly reviewed and clear on the obligations of your customers as well as of your business.

• You could consider carrying out checks as to the credit worthiness and status of customers when doing business. You certainly cannot completely prevent any issues but there are online based services to check companies, business or individuals that you are doing business with;

• You should have continuing, clear and prompt communication processes with customers on an ongoing basis, especially as soon as it becomes apparent that problems may arise. Sometimes a genuine misunderstanding or temporary issue can balloon very quickly and unnecessarily into a full blown dispute;

• It is sensible to continually review and consider the costs and benefits of pursuing some smaller debts and, on a few occasions, you may take a view as to when it might be appropriate to call it a day and write it off. It is surprising how quickly the costs to your business of the relentless pursuit of debtors, including staff time, can spiral and become more than the debt themselves. This can lead to a double whammy effect on cashflow.

• Take advice early on. Sometimes a timely review or seeking advice earlier in the process can prevent the need for more extensive and costly assistance further down the line. Take appropriate advice also, solicitors can be a surprisingly cost effective first port of call, especially with fixed fees such as at EA Law Solicitors.

Contact Lee Dowling at EA Law Solicitors for a no obligation fixed fee quote for bespoke business and commercial advice and assistance including insolvency matters, dispute resolution and litigation.

Email lee@ealaw-solicitors.com

Telephone: +44 (0) 20 3402 6095

We can:

• Review your contracts and terms of business and provide advice.

• Update, redraft or amend your terms and conditions, all tailored to your business needs.

• Provide full sets of terms and conditions, website legal packs and compliance reviews.

• Advise and assist with your business and commercial legal matters in consultations at times convenient to you, available by telephone and Skype.

• Assist you throughout dispute resolution and litigation processes with flexible agreed fixed fees on a stage by stage basis with unbundled legal services.