How to handle debtors

Let’s assume your customer is stalling on payment – perhaps more so than usual; what are your options?

Initially work with them; try to find out what their situation is and agree instalments on the debt.

Then, threaten and charge interest under the late payment legislation – the rate is 8% over Bank of England base, and you can claim it even after the debt is paid. An administration charge between £40 and £100 may also be levied.

Obviously you won’t want to continue supply, but if you have a long-term supply contract you will need to check that you are not committed to accepting future orders; if you are, terminate the contract correctly (this can be tricky), in case you give yourself difficulties.

Do you have retention of title rights on your goods? The threat of losing stock may just prompt the customer to pay up old debts, at a rate you are prepared to live with. Debt claims in the court can signal the end of the trading relationship or warn customers not to mess with you about payment. This is a judgement call. Claims can be made online – particularly suitable for debt claims; remember to add interest and court fees. If the customer disputes liability you will be wise to get a legal assessment of the strength of your case.

Alternatively, a formal “statutory demand” for debts over £750 requires the debtor to pay up within 21 days. Failure is proof of insolvency and you are free to petition for a winding up order. You can in fact dispense with the statutory demand if other evidence of insolvency exists. The threat of a petition can prompt a positive reaction if the debtor believes you are serious and if it wants to avoid going down; these are big “ifs” so you need to be confident.

© S Calnan 2009

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