Debt Recovery questions/advice

Hi, I’m hoping you might be able to help me with some questions regarding debt recovery and what you could do to help.

Some background:

I’m a graphic designer, Director of a limited company. I began working with a client (another design company, Ltd) in August 2020, completing a variety of design work for them. The client is a limited company and was/is in the process of transitioning from one company to another. In total I have invoiced them 4 times, 2 invoices have been paid and 2 are outstanding.

The sum of the outstanding invoices is £1500.

We had no official contract, much of the work and costings were discussed via phone and email which is obviously not ideal. I have an email from the client after I sent my invoice where he said there was no issues with the invoice. I also have email correspondence and messages confirming certain costs of jobs which were within the invoice and the email trails of the jobs - so a pretty solid account of the work.

After chasing the client myself multiple times via email and phone I instructed a debt recovery company to issue formal letters, make some calls etc. The standard debt recovery procedures. This company makes their money by recovering Late Payment Fees so I am not out of pocket yet.

I am now in the situation where the debtor has ignored all correspondence from the debt collection company and my next course of action would be through legal means. The cost to start the proceedings would be; the court fee of £105.00 plus solicitors costs of £112.00+VAT = £239.40. The majority of these fees would be recoverable if I were to be successful. However I would need to pay these up front to get proceedings underway.

Once proceedings are underway the debtor will be issued with the Claim Form. It is possible that the debtor could look to defend the matter, and or file a counter claim against me, for reasons I do not know which is one reason I’m looking for some input here.

If he does not settle the debt or file a defence, the debt collection company will apply to the court for the entry of a County Court Judgment. This would then lead to the need of a High Court Enforcement Officer at the cost of £181 which would be recoverable if the debtor pays or has assets retrieved of value.

Some concerns/questions:

• If it got to the bailiff stage I don’t know what assets he might have that would be of value. He might have computers but I’m assuming it would need to be in the business name for it to be used to cover the debt?
• What else could be retrieved for payment?
• What could his defence/counter claim be if he chose to defend the Claim Form?
• How strong/flimsy is my case if we didn’t have a contract drawn up?
• If a CCJ is issued to his business, how will that affect the business? i.e credit rating etc

I’m basically trying to work out the ‘cost vs reward’. On one hand I feel the debtor shouldn’t be allowed to get away with not paying his debt and I should do what I can get payment. On the other hand I could let it go and avoid any potential drawn out battles.

Sorry for the long message. It would be great to get some general advice on this.

Thanks!

 

Have you called him or even been round to ' discuss ' the matter. It's the cheapest way to at least find out a few basic details and then work from there.

 

And if the company has no assets? If it ceases trading?
You pay out for no gain.

You can take action. What is the best result you can expect? And what happens if an offer of payment is made but its going to take years to pay?

 

If a company is struggling to pay you £1,500 -- They likely have no money.

I'd take it as a learning lesson.

The biggest issue you'll have is that just because £1,500 is owed, does not mean you're going to get paid £1,500 any time soon. If someone is genuinely struggling, a debt repayment option would need to be provided.

That could mean getting paid £5 a month for the next 25 years.

For £1,500 it's like not worth the time, energy or cost.

Focus on bringing new contract terms to your business, going forward to prevent issues, rather than trying to fix issues. Work has to be paid upfront for the first £5,000 of work and anything after that can be paid on invoice etc.

 

Have you searched the company's file at Companies House? You can do so here and, importantly, it's free.

It may, or may not, give you more information about the debtor company and you may be in a better place to decide whether to just write the debt off to experience. or pursue legal action.

 

Who did you invoice?

New company, or old company?

If the old company is closed/liquidated, there is no 'company' to chase for the money.

As said above, if they've no assets, no money, you're pissing in the wind I'm afraid.

 

I would recommend you email them due to no response you are considering legal action and offer them to set out their reason for non payment. If they answer no problem with the work, or do not raise any problems, ie overcharging, not fulfilling the brief, you have less of potential defence to be raised against you.

Hard to advise re going legal, did you do any credit check before lending your cash to this client? It’s a bit late to check now, but worth doing to decide whether to proceed or not.

 

Here is what I would do in your situation.

1. Drop the collections company. They are clearly one of those who just send letters. It occasionally works, but not in this case.
2. Try very hard to make contact with the key individual responsible for making payment.The most effective medium by far is a polite face-to-face meeting. Second best is phone (or Zoom).
3. Establish whether the company with whom you are contrated still exists. You can do this via Companies House or credit reference agencies.
4. Send Letter Before Action - signed for.
5. Issue a claim through MCOL. Keep it crisp, clear & relevant
6. Let it roll from there.
7. Create and adhere to a coherent credit control policy. Otherwise this will happen time & time again.

As a long shot, is there anything you delivered that you can claim to be your IP?

 

Thank you everyone for your replies, it's been very helpful reading through your advice and suggestions.

Prior to instructing the debt recovery service I sent multiple emails, messages and tried phone calls. All of which were ignored making it difficult to discuss the matter. I haven't specifically asked why hasn't the invoice been paid but more so; 'please pay the outstanding invoice for work completed, it's overdue etc'

The best result would be immediate payment.
Worst result, no payment at all + my company paying for legal costs/forms etc
Middle result, payment received over a long duration of time.

The thing is I suspect he does have the money to pay and he is trading as normal, but of course I do not know that for sure. I'd also hate for him to do the same to someone else.

I had no reason to suspect he wouldn't pay, particularly as he paid 2 invoices prior to the outstanding ones.

I did do a company search prior to doing the work. His first company was transitioning to the second. There was a 'Compulsory strike-off action' however that was discontinued.

There are no company records for the second company to gauge how much money the company has.

I invoiced 'Company 1 trading T/A Company 2'. Both companies are still 'Active'.

Can a CCJ force a company to pay for debt if they have money in their accounts or can the debtor simply saying no?

Is that a perfectly acceptable thing to do even though I had instructed a debt collection company to send letters/make calls to them? I'd happily email the debtor myself again. I'm not a monster so if he's fallen on hard times I have sympathy, but for him to simply ignore any attempt of contact is just not right.

I didn't credit check them before commencing work. Would it still be useful if the new company isn't a year old yet?

I am glad I went with a no fee upfront debt company, they have given me a lot of useful information of the processes which I value.

I could try phoning them again, though I suspect they would simply ignore my call. I could leave a voice mail but then it's a one way call. I could try phoning under a different number but I suspect once he know's it's me he would hang up.

Both companies still exist and I invoiced 'Company 1 T/A Company 2'.

MCOL is interesting, is that a 'Do it yourself' claim? Does that differ a lot to the legal route set out by the debt collection company?

IP: There was a selection of work I completed which were essentially all of my work which was then put into his company's 'branding'. For example I designed a selection of logo designs, brand elements and applications for a retail setting. But there was also some work where I carried on what he had started so wouldn't strictly be my work.


Thanks again for everyones help!

 

Another recommendation for MCOL

It’s not expensive and it’ll soon give you an idea of the defendant’s intentions regarding payment.

 

Thank you.

Does MCOL lead to gaining judgement on the debtor? (assuming it goes in my favour)

 

Eventually yes. If the debt hasn’t been disputed then the debtor will either:

1) Pay up on receipt of court paperwork.

2) Contact you to arrange stage payments.

3) Ignore everything.

If 3, then you will get a judgement by default. If the debtor doesn’t care about a CCJ then it’s reasonable to assume they have no money.

It’s a process that allows you to file paperwork & then switch off to concentrate on making money.

I’ve been there done that (£47K ) and our debtor made a spurious defence. Paid up literally the day before court (9 months later).

Hope you get it resolved quicker than that!

Best of luck

 

I'm a little confused why you've never straight out asked them why they haven't paid? Instead of going to this agency, it would be better to talk, discuss, and if then mediation (courts like to see mediation attempts first). Then and only then, I'd move to the small claims court, easy to do, don't need a solicitor, just be really on top of your paperwork and able to argue your case clearly and concisely.

 

Perhaps focus on the company that actually contracted with you.
Company 1 T/A company 2 is you stating company 1 is trading as company 2 name. Doesn't mean company 2 owes you the time of day.
The company you had a deal with, that is who owes you money. What the other company does is irrelevant to you if they don't owe you money.

The company that owes you money - either its still trading or its not. If its not trading it may not have any money.

 

If it does then still where you are at now except you have an additional piece of paper.
Unless the company pays.

 

“I didn't credit check them before commencing work. Would it still be useful if the new company isn't a year old yet?”

This is worrying, we are in a climate of many companies not trading, suffering cash flow problems and possibly facing bankruptcy and you have extended credit with zero checks?

It’s your money, try not to lose it too easily. A credit check now will possibly give you an idea of the state of their finances, alternatively they might not be trading at all due to the current circumstances. Do you not have any way of finding out if they are still trading, working, employing people etc? Friends in the trade, mates nearby who could look in?

Over 35 years in business and I always have had a policy of no credit extended for six months minimum, everyone big or small had to do proforma invoicing, payment in advance, just my rule, but it stops myself from chasing a load of non payers.

I think it has stopped a handful of clients using myself over the years, but it has kept my cash flow positive. In the last bad recession with circa £150k per month trade, I lost £67 on bad debts across a whole year. A company I refused credit went on to nearly bankrupt a competitor for £215k in their first five months of trade with each other. Only you can decide your own policy, but I suggest you think of one ASAP and stick to it.

 

Yikes! I'm glad it's no where close to that amount. Thank you.

This is a good point. I have tried to contact the debtor but you are right, I haven't specifically asked 'is there a reason why you haven't paid'. Probably because I had no indications that the work I had done was not to the standard (because it was all approved by him), or he was in any hardship even given the current climate.

His businesses are still Active and the clients he had were big. Therefore I was in the mindset of 'he's not paying because he simply doesn't want to. He's taken the work I've done and scarpered'. I have given him many opportunities to come back to me and say why, but by simply ignoring any correspondence from me it doesn't allow for that conversation to happen. But you are right, I haven't asked specifically. Is it too late to do so?

Thank you. This is now where I'm thinking perhaps I've made a mistake in whom I was invoicing and has now become confusing. Technically Company 1 was invoiced for the work. However, the name of the business/company and correspondence I was dealing with had always been Company 2. i.e Email addresses were [email protected] 2 but the invoices were not updated to name Company 2 on them. This has only become apparent now through the lack of payment.

He was transitioning from Company 1 to Company 2 (for whatever reason). No mention of 'the company has finished transitioning so please invoice company 2 now'. They are still 2 separate entities.

So it's a confusing situation, at least to me. Is it possible for me to update the invoices to reflect Company 2? Should I even do that or carry on pursing Company 1? If I can/do update the invoice would that mean the debt wouldn't be outstanding until further time elapses?

Thank you. I think the reason I didn't do credit checks was because the first invoices were paid very quickly, I recall one was paid upfront actually. Therefore I didn't have any reason to suspect he wouldn't be able to pay. Quite naive, I admit.

I don't have evidence but I strongly think they are still trading and carrying out work. They had some big clients that I was working with. Although the confusion I mentioned above between Company 1/2 would suggest he has transitioned to Company 2. Also when the debt collection rang the debtor answered from his business address. I will certainly be looking into policies I can introduce. This is the first time I have had any issues with companies failing to pay, but it has highlighted issues within my business.

Thanks again for all of your replies.

 

[QUOTE="12Matthew12, post: 3058426, member: 253225"





Thank you. I think the reason I didn't do credit checks was because the first invoices were paid very quickly, I recall one was paid upfront actually. Therefore I didn't have any reason to suspect he wouldn't be able to pay. Quite naive, I admit.

.[/QUOTE]

Hopefully for you the lesson has been learned - there is no place for naivity or vague assumptions in credit control

For others who think it's a good idea to lend customers money without proper research, consider this

One of the oldest, most basic & enduring forms of business fraud is the 'long firm'. It simply involves paying everyone promptly, building a good credit history before making the big hit, placing huge orders and buggering off with the money.

Whilst this almost certainly isn't a fraud as such, the same principles apply.

 

At this stage of the game I'd do nothing about it - if you are really lucky it will keep your options open to pursue either or both parties.

Moving forward, it really is very important to know who your customer is. It's extraordinary how many gullible businesses believe they are working for BigCo, when in fact they are working for a sub contractor, or perhaps a tiny subsidiary of BigCo.

 

When I did collections, there was a huge emphasis on physically turning up.

Not only did it vastly increase your chances of being paid, but it gave a lot of insight to the circumstances of the debtor.

I can give any number of examples where a simple, friendly visit has yielded results where 'heavy' processes have failed.