Best debt collection option for small debts (<£50)?

[Lektra]

Hi, does anyone have any advice on the most effective options for collecting small debts? We get very few debtors, but the ones we have are generally people who have invoices worth around £35-£50 who sometimes don't pay because they know it would cost us more than that in time and fees to take them to small claims court.

Asking for payment in advance isn't feasible unfortunately as very few people are willing to pay up front for an electrician. Too many dodgy ones around who take the money and run!

Is it worth looking at debt collectors or selling the debt for small amounts? How much would fees typically be on a debt less than £50?

 

[Geoff T]

Best - and most cost effective method IMO - Get a card machine and take payment on completion... save the bother...

option 2 - invest some money in taking a few of these to court... it will cost you, but you can recoup the cost, and the reputation that you won't accept being ripped off is PRICELESS...

 

[Lektra]

Thanks Geoff, we try and collect payment on job completion where possible, but we're not always able to do so- if we're working on behalf of landlords or if the account payer isn't home at the time of our visit, for example.

We've previously taken 4 people to court and it's been a waste of time and money in each case. We won all four cases only to find that the court imposed ridiculous payment plans (£1 a week for 240 weeks in one case). We either received no payments at all or an initial payment of a few pounds and then no further contact from the debtor so in general our faith in the court system is extremely low. Sadly I don't much see the benefit in having a reputation for taking people to court if the courts have a reputation for being utterly useless!

 

[LABJES]

Best - and most cost effective method IMO - Get a card machine and take payment on completion... save the bother...


Would me my advice too. Has solve our 'small debtor' problem and we get paid in advance.

 

[Geoff T]

think you're missing options here...

have you looked at the FULL range of enforcement options available when you have a CCJ - courts don't like it when people fail to adhere to payment plans - especially when they "did them a favour"!

 

[Geoff T]

ps - what about a deposit?...

 

[warnie]

This would wind me up no end to the point whereI would have a go at undoing the work untill they paid up + costs incurred. I know in most cases it's not possible/legal but sod it!

 

[Lektra]

Geoff, thanks for the input. The last people we took to court were around 5-6 years ago when other family members ran the business, so I can't tell you what steps they took. I know at least one of them claimed he had a 'stress-related illness' which complicated legal matters. In any case, on a £35 debt court action would probably still cost me more in time and fees than the invoice was worth, which is why I'm looking at other options.

Deposits, again, are a problem because people are distrustful of any up-front tradesmen payments and a lot of our jobs come through via email. We do use advance payment for known late-payers, because we don't much care if we get the work or not.

We find that even if we tell people that we need payment on job completion when they book the work in, some people still say at the end of the job that their partner's paying and he isn't there/they need to move money around bank accounts/etc etc and ask if they can pay the following day. On those occasions we don't have any other option than to agree and 99% of the time they pay with no issues. It's only on the odd occasion that we have trouble, certainly not frequently enough to warrant losing the customers who pay with no hassles.

My main query is about if debt collectors even consider taking on small debts and if so, if it would be more cost effective to employ a collector, sell the debt or look into a different non-court option?

 

[Steve Thornbury]

Hi Lektra - As you have experienced Courts are, largely, a waste of time money and effort.
The amounts are a problem to most DCA's, as they are too small.
Geoff has a few good suggestions on here and it would be worth your while talking to him and picking his brain

 

[LABJES]

I'm currently using an architect for personal business who mentions his fee and when he wants paying at every available opportunity. I guess we've all been subject to the old 'my husbands not in and he's paying' scenario. Perhaps escort them to the local cashpoint machine, wonder if that would be classed as acceptable....perhaps not!

 

[mit74]

how much does it cost for a card machine though? surely it's more than what the debts would be?

 

[Merchant UK]

how much does it cost for a card machine though? surely it's more than what the debts would be?

You get mobile ones which could be used every day not just for debts, streamline rent theirs for about £14 a month dependant on what tarriff you have.

Theres nothing embarassing about asking for money, if the customer is not there you don't do the work, simple. The secret is not to get in a position where your owed money, its a waste of time, resources and expense.

People who are honest are happy to pay when the works done, perhaps you could add to your written quote, "Payment upon Completion" and get the Customer to sign. If the customer says that they are going to pay but halfway through the job you hear different, then don't finish it, its wasting your time and effort. You'll be suprised to see who pays when you tell them you won't be able to finish until a couple of weeks!!

If they give you a cheque, tell them you'll wait for it to clear, or ask for cash. You need to assess the risks, if someone is hesitant in paying then they probably won't pay.

Good Luck

 

[JohnnyCash]

Theres nothing embarassing about asking for money, if the customer is not there you don't do the work, simple. The secret is not to get in a position where your owed money, its a waste of time, resources and expense.

Yes but you are completely ignoring this fact:

On those occasions we don't have any other option than to agree and 99% of the time they pay with no issues

You're really cutting your nose off to spite your face if you're walking out of dozens of jobs (after paying to get there and allocating time to that job), solely to make sure 1 of those people doesn't manage to get away without paying.

There is very little option but just keep doing these jobs and write off the tiny number who don't pay as someone you won't work for again.

 

[Lektra]

Thanks for all the suggestions, I do appreciate the input but as JohnnyCash says, we would lose an awful lot more business by insisting on payment on the job than we would save from preventing the 1 or 2 £35 debts we get per year.

"if the customer is not there you don't do the work, simple."

Unfortunately not as simple as it sounds. People have jobs and a lot of our work is done during working hours when people either give us keys to the property or leave someone like their 16 year old son at home to let us in. We also do work for landlords and management companies who we bill once the work is complete.

"If the customer says that they are going to pay but halfway through the job you hear different, then don't finish it, "

No one would ever tell us half-way through a job that they're not planning to pay straight away. Usually we finish before they mention anything about payment, even if the terms of payment are in the conditions form that they get given when we arrive. And if we've been called in to sort out a fault with someone's electrics it's not like we can put the fault back on their electrics before leaving, even if we were willing to spend another couple of hours re-installing their old cables and getting aggressive with someone who's probably a perfectly good customer with a genuine intent to pay.

"If they give you a cheque, tell them you'll wait for it to clear, or ask for cash"

Not practical, I'm afraid. We're emergency electricians so we don't get time for cheques to clear before the job begins, we just get a panicked phone call to say the customer has an electrical fault and we go over straight away and sort it out. If it's the middle of the night then it's reasonable that people may not have enough cash in the house, especially as many of our customers are elderly who don't even have debit cards and rely on having to go to their building society to get printed cheques.

Sorry, I really don't mean to be awkward, many of the suggestions so far have merit but are just not feasible for our particular type of business and customer base. We're not looking at changing our payment terms, since it brings us in more money than it loses, but I was mainly curious to find out if people tend to just write off small debts or if there are other legal avenues available for the odd person who tries it on.

 

[Geoff T]

OK - if you want viable options Lektra, how many of your customers/clients are repeats?

 

[Geoff T]

Also - where does this difficlut 1% come from?

 

[LABJES]

Sorry, I really don't mean to be awkward, many of the suggestions so far have merit but are just not feasible for our particular type of business and customer base. We're not looking at changing our payment terms, since it brings us in more money than it loses, but I was mainly curious to find out if people tend to just write off small debts or if there are other legal avenues available for the odd person who tries it on.[/QUOTE]

Slightly sneaky way round this if you really want to pursue. Fill in the template for the County Court Claim form with all their details and proof of the debt, send them the pre filled forms and state that if they don't pay within 4 days you will be lodging the enclosed claim forms with the county court. It's a way of getting their attention before you actually pay any court fees. Sometimes the sight of an official form will prompt action, but you will always get the die hard non payers who know how to work the system!

 

[purplealoe]

I use an online debt collection company who charge £3.50 per letter

 

[Geoff T]

Sorry, I really don't mean to be awkward, many of the suggestions so far have merit but are just not feasible for our particular type of business and customer base. We're not looking at changing our payment terms, since it brings us in more money than it loses, but I was mainly curious to find out if people tend to just write off small debts or if there are other legal avenues available for the odd person who tries it on.

There just might be "tweaks" to the current system that could save you the bother, or that mean you don't have to bluster without any intention of following it through...

Part of the problem with the system now is people KNOW that the approach you suggest in your 2nd para IS bluster, and so will ignore you...

Unless you review properly, feasible cannot be determined... "difficult" is not the same as "unfeasible" - and if "different" saves more than "same as" then you'd still be better off...

 

[LABJES]

There just might be "tweaks" to the current system that could save you the bother, or that mean you don't have to bluster without any intention of following it through...

Part of the problem with the system now is people KNOW that the approach you suggest in your 2nd para IS bluster, and so will ignore you...

Unless you review properly, feasible cannot be determined... "difficult" is not the same as "unfeasible" - and if "different" saves more than "same as" then you'd still be better off...

Just to clarify Geoff, the 1st para is a quote from the OP, not my words!

 

[Geoff T]

Just to clarify Geoff, the 1st para is a quote from the OP, not my words!

Fair enough - but ran with the thread of the discussion - no personal inference intended!

 

[LABJES]

There just might be "tweaks" to the current system that could save you the bother, or that mean you don't have to bluster without any intention of following it through...

Part of the problem with the system now is people KNOW that the approach you suggest in your 2nd para IS bluster, and so will ignore you...

Unless you review properly, feasible cannot be determined... "difficult" is not the same as "unfeasible" - and if "different" saves more than "same as" then you'd still be better off...

But it's not bluster if followed through is it? Just annoys me when you go throught the process of paying the court fees, debtor then pays up but never pays the court fees so you're back to square one again with them owing a small debt!

 

[Lektra]

Thanks Geoff, I'd say our repeat customers are probably around 65-70%.

Looking at the debtor/late-payer list for the last few years around 40% of them are takeaways. We're very cautious about taking work on for this type of business now and usually ask for advance payments or deposits.

The remaining 60% are domestic individuals. Half of those are people who've called us out for a job but once we've found the problem have decided not to go ahead with a repair, for whatever reason. For example, the part needed to fix the problem is too expensive and they decide to live with the fault or 'think about it.') On those occasions the customer often thinks we shouldn't be paid for finding the cause of the fault since we 'haven't done anything', even if we've been there testing for several hours and it's their decision not to go any further with a repair.

The other half of the individuals are people who we assume just intend to fleece us. We either get no response to overdue invoices and no answer to phone calls or personal visits, or we get the old sob story routine about how they just got laid off/had their car stolen/budgie died etc etc.

The majority of the overdue invoices have been for £35, i.e. an hour's labour and callout charge. Debtors are nearly always new customers. Does that help any?

 

[LABJES]

Fair enough - but ran with the thread of the discussion - no personal inference intended!

None taken Geoff! I wanted to highlight as it doesn't read properly otherwise, my quotes don't always work for some reason!!

 

[KateCB]

I think that the key here is that when you take the emergency call, state very firmly that 'the fee for call out and testing is £35.00 for the first hour(if thats the right wording) payable when we give your our report (I take it you give them a written report/quote as to what needs doing?) - will you be paying cash or cheque?

DO it to EVERY caller, repeat or not - if they are repeat, you can add in , 'but you know that anyway, will you paying cash or cheque this time?' Then everyone is aware, up front, that you are not issuing an invoice and waiting, but will require payment there and then; if they say they can't pay until tomorrow.....then its your choice, but at least you know BEFORE you dash out at 11pm to replace a light bulb for dear old Mrs Smith..?

Its an old sales trick - closed question, cash or cheque - end of story.

 

[MH1]

FWIW, I would state you require their card details before even setting off to the job, and take payment there and then for at least the minimum call out fee, you can even use your own phone is a smart phone with a system such as adelante.co.uk

State the balance will be deducted on completion, no card details save yourself the trouble of going out, unless cash is ready and waiting. You would need to get your contracts correctly made out, and get your workers to have them signed on arrival.

Such small debt amounts would only warrant a letter IMO.

 

[surgery_cards]

I don't know if you are aware but you can charge a Debt Collection Fee starting from £40 & interest under the Late Payment of Commercial Debts Act. This may make the idea of taking a Business Customer to court as you will be entitled to a higher claim. I'd still pursue the case via the court.

Unfortunately the food industry have a bad record for late or non payment as the Late Payment Index from Experian shows.

Another idea would be to offer a discount if the customer paid you when you visited them or within x days of being invoiced??

 

[SoftwareProUK]

Do you have an iPhone? Maybe squareup.com will come to the UK soon and you will be able to say "No cash? Oh thats ok I take payment on my iPhone" There is actually another one in which you can take a picture of the card and take payment that way.

 

[JohnnyCash]

FWIW, I would state you require their card details before even setting off to the job, and take payment there and then for at least the minimum call out fee, you can even use your own phone is a smart phone with a system such as adelante.co.uk

And how much will the credit card fees on 100 jobs add up to, in comparison to the 1 of those 100 who wouldn't have paid if you gave them the chance?

Then how many of the people who intended to rip you off will do a chargeback anyway, costing you even more than if they'd just not paid you in cash?

 

[crphillips]

We probably carryout around 600-700 jobs a year worth £35-£45 as well as our bigger jobs. We've had the odd problem but it is tiny in the grand scheme of things. Maybe one or two don't pay straight away but we always get it.

If the customer doesn't know your the boss just pretend to be an employee and tell the customer the boss won't allow you to leave until you've been paid. That works a treat. Amazing how fast they find the cheque book.

I used to feel embarrassed about asking for payment but not anymore. It states 'payment upon completion' on my quote in big bold red letters so there's no argument really. If the customer thinks your being off asking to be paid for the work you've done then maybe it's not the type of customer you want.

We're in a fortunate position where we can pick and choose our customers though.

 

[MH1]

And how much will the credit card fees on 100 jobs add up to, in comparison to the 1 of those 100 who wouldn't have paid if you gave them the chance?

Then how many of the people who intended to rip you off will do a chargeback anyway, costing you even more than if they'd just not paid you in cash?

Obviously that is something everyone has too take into account, along with the wasted time dealing with such clients, loss of materials, labour etc.

If a correctly worded contract was signed on arrival backing up the call out fee I doubt too many would try a chargeback, but there is no 100% foolproof method which suits all.

 

[JohnnyCash]

Yeah but its never going to be cost effective to lose a small percentage on each order, purely to ensure 1 out of 100 don't pay.

And he's already said often payment isn't made as its a tenant or a kid or someone left there to let them in - what use is a contract signed by someones 15 year old son, babysitter or tenant?

In reality there is zero that can be done to sub-£50 scumbags. About the best you could hope for is to pick a handful that were particularly scummy about their non-payment, and take them to court and enforce payment. Then for any other non payers, send them a letter detailing the exact outcomes of the court cases and that you can, and do, cut your nose off to spite your face and throw away £100 to get £50. It'll be a bluff obviously, but they might think you do take all non payers to court and finally pay.

 

[LABJES]

Problem I'm finding, admittedly with larger amounts owed is you issue a claim and they call up and say 'if you persist chasing this money I'll just shut the company' they do, then reappear the following Monday trading again having wiped out all the debts. I'm finding that a lot of our non payers know the system and invariably we are collecting less and less due to liquidations. Even the soler traders are all bankrupting themselves theseday, gone are the days when you could obtain a charge on their property. Some business people are making a good living out of running a business for a year, raping and pilaging the funds then shutting up on Friday and pheonixing on Monday morning! What do you do!

 

[Geoff T]

But it's not bluster if followed through is it? Just annoys me when you go throught the process of paying the court fees, debtor then pays up but never pays the court fees so you're back to square one again with them owing a small debt!

if followed through, no it's not bluster, but chasing for unpaid fees etc is part of the process... proper follow through... of course, "part payment" of the debt - which in effect we're talking about, means you can pretty much be sure of a CCJ...

 

[Geoff T]

Thanks Geoff, I'd say our repeat customers are probably around 65-70%.

Looking at the debtor/late-payer list for the last few years around 40% of them are takeaways. We're very cautious about taking work on for this type of business now and usually ask for advance payments or deposits.

The remaining 60% are domestic individuals. Half of those are people who've called us out for a job but once we've found the problem have decided not to go ahead with a repair, for whatever reason. For example, the part needed to fix the problem is too expensive and they decide to live with the fault or 'think about it.') On those occasions the customer often thinks we shouldn't be paid for finding the cause of the fault since we 'haven't done anything', even if we've been there testing for several hours and it's their decision not to go any further with a repair.

The other half of the individuals are people who we assume just intend to fleece us. We either get no response to overdue invoices and no answer to phone calls or personal visits, or we get the old sob story routine about how they just got laid off/had their car stolen/budgie died etc etc.

The majority of the overdue invoices have been for £35, i.e. an hour's labour and callout charge. Debtors are nearly always new customers. Does that help any?

lots thanks - you've specifically identified the people who should be paying the initial call out fee up front! You can make this easier 2 ways:

1. Do it for everyone in the target group (and make it sound like a script, so it doesn't sound like you're picking on them, or being personal)
2. Add in to the offer a rebate if the repair work is awarded to you after initial call out... reduces the risk, gives them an incentive to use you more...

and be solid on this - if you don't get a cleared payment (using a debit card, forget credit cards for the 1st payment), then put your feet up and stay home! (The number of jobs you'll lose will balance out against the potential loss IMO)...

I think that the key here is that when you take the emergency call, state very firmly that 'the fee for call out and testing is £35.00 for the first hour(if thats the right wording) payable when we give your our report (I take it you give them a written report/quote as to what needs doing?) - will you be paying cash or cheque?

DO it to EVERY caller, repeat or not - if they are repeat, you can add in , 'but you know that anyway, will you paying cash or cheque this time?' Then everyone is aware, up front, that you are not issuing an invoice and waiting, but will require payment there and then; if they say they can't pay until tomorrow.....then its your choice, but at least you know BEFORE you dash out at 11pm to replace a light bulb for dear old Mrs Smith..?

Its an old sales trick - closed question, cash or cheque - end of story.

Good idea, and reinforces what I suggested above... so I copied this in too...

 

[Geoff T]

In reality there is zero that can be done to sub-£50 scumbags...

proforma (cleared funds) in every case... IME the benefits have always outweighed the cost/loss...

 

[Geoff T]

Problem I'm finding, admittedly with larger amounts owed is you issue a claim and they call up and say 'if you persist chasing this money I'll just shut the company' they do, then reappear the following Monday trading again having wiped out all the debts. I'm finding that a lot of our non payers know the system and invariably we are collecting less and less due to liquidations. Even the soler traders are all bankrupting themselves theseday, gone are the days when you could obtain a charge on their property. Some business people are making a good living out of running a business for a year, raping and pilaging the funds then shutting up on Friday and pheonixing on Monday morning! What do you do!

The reason "phoenixes" work, and the sharks keep going is because companies always think that "well, at least if we deal with 'phoenix b' we'll recoup the loss of 'phoenix a'"...it's common and more than a little daft IMO...

A Zero tolerance policy should be the only option... keep feeding the shark, and he WILL come back for more...

 

[JohnnyCash]

proforma (cleared funds) in every case... IME the benefits have always outweighed the cost/loss...

You've not read the thread have you...

He can't take money up front as it will cost him FAR more business than it prevents fraud.

 

[Geoff T]

yes I have, but said IME (in my experience) that the losses are outweighed by the benefits. I also suggested before that using on a specific part of the market (thus reducing the potential loss further)...

Besides, I was answering your point about there being nothing that can be done... I think there can...

 

[LABJES]

The reason "phoenixes" work, and the sharks keep going is because companies always think that "well, at least if we deal with 'phoenix b' we'll recoup the loss of 'phoenix a'"...it's common and more than a little daft IMO...

A Zero tolerance policy should be the only option... keep feeding the shark, and he WILL come back for more...

Yes agreed Geoff. I would never deal with these people again but plenty of associates will, even though we share information in the industry there's always someone willing to supply them which really grates when you've been 'stuffed' by said customer! It's happening a lot, this year it's all about getting the money in. Well, as long as they don't liquidate or bankrupt themselves before we get chance!