Payment Related Issues- What are the Options
Whether your business is booming, breaking even or struggling in difficult economic times, the common denominator is cash collection. Following on from our article in January, in which we dealt with the specific options open to businesses when the Construction Contracts Order applies we thought it would be useful to remind you of the other legal avenues open to you when that Order and its provisions do not apply.
Terms and Conditions – Start as you mean to go on:
Drafting effective terms and conditions is one of the key steps any business can take. Good legal advice at this stage can prevent complications further down the line. It is essential to make sure that your customers are aware of your terms. Every new customer should be sent a copy of your terms and they should be printed on each invoice you issue.
Make sure to include (if necessary, and appropriate):
- Retention of title clauses
- Interest for late payment (or consider applying interest pursuant to the Late Payment of Commercial Debts legislation)
- A term allowing recovery of reasonable legal costs.
Legal Action – The options:
- The first step is to issue a Solicitor’s letter which indicates that the debtor has a specific period to pay (usually 7 days). This warns them that if they fail to respond, you will proceed with legal action to recover the money. It also advises them that they will be responsible for your legal costs and interest. This will often encourage customers to make contact with you and open the lines of communication and may even lead to immediate payment as the debtor now sees you are serious about taking action.
- In cases where there is a genuine belief of financial difficulty/insolvency and the debt is not disputed, a Statutory Demand can be issued. This gives the debtor 21 days to pay and will put pressure on them either to pay in full or seek appropriate advice, especially if they are continuing to operate a business. If they fail to do so a Bankruptcy Petition (for an individual) or Winding-Up Petition (for a company) can be issued. In the case of companies, notice of the petition must be advertised and therefore business contacts may become aware of the position. This may affect existing trading relationships. Bankruptcy can negatively impact the debtor’s accreditations with professional organisations or even prejudice their current employment.
- If negotiation fails in relation to a disputed debt, the only way to proceed may be to seek a Court Order. This will either be in the County Court for debts up to £30,000 or in the High Court for debts above this amount. A Judgment will include a sum for your legal costs and interest due. However, getting to this point can be a lengthy process and not all costs may be recoverable.
In Northern Ireland the only way to enforce a Judgment is through the Enforcement of Judgments Office (unless insolvency proceedings are appropriate). The EJO has a wide range of powers to secure payment from debtors. These include but are not limited to the following:
- Attachment of Earnings Order (payments come directly from the debtor’s salary);
- Order Charging Land (a ‘charge’ is placed on the debtor’s land for 12 years);
- Attachment of Debt Order/Garnishee Order (which gives the EJO the power to freeze the debtor’s bank account).
Each debt is different and therefore the legal action taken can be tailored to suit the individual circumstances and to allow it to be dealt with in the most cost-effective way.
If you would like to know more, contact Mark Thompson, Solicitor, Mills Selig: www.millsselig.com