Client Agreed to Payment Plan but Hasn't Paid – What Are Our Options?

[Baretto]

In January we sent a Letter Before Action to a UK company for an unpaid invoice of **£6,000**. The client is not disputing that they owe this debt.

They agreed to a payment plan and a direct debit was set up at the end of January, which would have cleared half the debt by now, but every payment has failed due to insufficient funds. When we've contacted the debtor they have basically said there wasn't enough money in the bank at the time the direct debit was issued.

At this stage, what are our best options? We’re considering:

- Proceeding with a Small Claims Court case

- Using a debt collection agency

I’m fairly confident they have stock at their registered address that could cover the debt, so bailiffs might be a viable option if we go down the enforcement route.

Has anyone dealt with a similar situation? What worked best for you? Any advice would be appreciated!

 

[Mark T Jones]

It's not good, I fear - at this point you are most likely standing in line to catch crumbs as they fall

I'll return later with details of a collections agent. In the meantime have you run a recent credit check to see what is happening?

 

[fisicx]

When we've contacted the debtor they have basically said there wasn't enough money in the bank at the time the direct debit was issued.

Which means there is unlikely to ever be enough money in the bank.

You could take further action to recover the money but it's more likely they will go bust before payment is made.

Do you have trade credit insurance or use invoice financing?

 

[Paul Kelly ICHYB]

What action did you threaten on the LBA?

Take that action!

Also, have you visited the debtors.

 

[Michael Loveridge]

I’m fairly confident they have stock at their registered address that could cover the debt, so bailiffs might be a viable option if we go down the enforcement route.

The bottom line is that you can't get blood out of a stone, and that taking further action may mean you're throwing good money after bad.

If the directors are genuine, and believe that the debt can eventually be paid, then it may be worth offering them extended credit on condition they provide a personal guarantee from the director(s). This means that if the company goes bust you can claim directly from the director(s).

Don't place any reliance on the stock situation. If they're going down the pan you can guarantee they'll sell the stock off long before you cant get bailiffs there. In any case, it may well be held under retention of title on a sale or return basis, so that it's actually still owned by the suppliers.

 

[Steve Thornbury]

Feel free to drop me a line

 

[Baretto]

If the directors are genuine, and believe that the debt can eventually be paid, then it may be worth offering them extended credit on condition they provide a personal guarantee from the director(s). This means that if the company goes bust you can claim directly from the director(s).

This sounds like a potential route, but how could I offer them legally binding credit and personal guarantee?

 

[Mark T Jones]

This sounds like a potential route, but how could I offer them legally binding credit and personal guarantee?

In a B2B environment, any legit payment agreement is legally binding (in writing is far easier to prove than verbal)

PGs would require some formal documentation, which I suspect can be easily bought (or copied). Enforcing through takes time and money - but in reality they are unlikely to sign one. Why would they?

Which raises the key question - do you have any kind of leverage, either in your contract or in the nature of your work?

Also, have you run a recent credit check?

 

[Michael Loveridge]

This sounds like a potential route, but how could I offer them legally binding credit and personal guarantee?

Feel free to get in touch if you need any assistance.

 

[eteb3]

This sounds like a potential route, but how could I offer them legally binding credit and personal guarantee?

You would definitely need legal advice to be confident of it being watertight, so I would take Michael up on his offer.

But if you really want to bootstrap it, I would have them sign this:

"In consideration of the creditor (creditor's full details here) giving time to the debtor (debtor's full details, inc company number if a company) to pay the debt of £6000 falling due on (date when it fell due), I [director full name and address] personally undertake to see to it that the company pays the debt in full in accordance with the extended terms. Signed, Joe Bloggs with no rider that Bloggs is a director.

You'll sign this:
"In consideration of the personal guarantee above I [or, maybe, your company - get it right and make sure it matches their guarantee!] give time to the debtor to pay the debt as follows: [clear and concise description of your new terms]. Signed, Baretto / Baretto on behalf of Baretto Ltd (as applicable)"

This isn't legal advice, just my accumulated sense of the law based on reading up for the love of it. I'd bank it, but your mileage may vary, as they say. Oh, and if you're going to let them pay in installments, make sure it's all due immediately if an instalment is missed.

 

[Lisa Thomas]

I can't imagine any reason why they would not retrospectively agree to pg this debt.