Dealing with problem Debtors

Cash flow is the life-blood of all businesses, so when clients do not pay their bills, it can directly affect all aspects of running the business effectively.

Many trainers have long term debts in excess of £50,000. Quite regularly a trainer will have clients who cannot or do not pay their bills. Despite the obvious benefits of high profile or high fee clients, unpaid bills can mount up to startling sums. This is bad business on for both parties involved and a creditor should not be embarrassed to take action to collect debts.

If you need to take action to recover money owed, it is important to have had a contract in place. A good training contract will enable you to refer owners to the BHA for placement on the Forfeit List. The contract will also ensure that you can add sensible interest to the debt. However, even without a contract, the Late Payment of Commercial Debts (Interest) Act 1998 permits interest to be added at 8% over base rate (even on bills that have been paid late). Click here for calculation website. For example, on an unpaid bill of £10,000 six months in arrears, the interest is calculated to nearly £700.

If faced with formal action, the following methods of debt recovery are available:

  • Hiring a Debt Collection Agency. This will typically incur a fee of up to 25% of the money owed
  • Issue a Statutory Demand and follow it up with a Bankruptcy Petition or Winding-up Petition. This method is fairly straightforward unless the debtor disputes the claim or if the debtor is not adverse to bankruptcy
  • Issue Court proceedings. This is a potentially lengthy option, but includes a variety of collection options that debt collectors simply cannot deploy and most costs of the proceedings should be paid by the debtor
  • Alternative Dispute Resolution. This is an attractive option if there is a willingness of both parties to engage. Disputes can either be decided in arbitration or settled by comprise in mediation.

Anyone owed money should not hesitate to take steps to collect their debts and take advice if necessary.

For more information contact Withy King
www.withyking.co.uk
Andrew Chalk, Partner
T: 01672 518806 (DDI)