Get paid in the UK
You have received a new order from a new UK customer and you have probably done everything right: gathered information about your client, assessed client and credit risk, sold and delivered quality goods or services, but the client has not paid or the upfront payment has bounced (chargeback). The following willl talk about how to get paid in the UK with both B2B And b2c.
Whether you are organised to chase bad payers in-house or not, there may come a time when you need local assistance with bad debt recovery.
The UK is not a simple market. It is a combination of 3 jurisdictions: England & Wales, Scotland and Northern Ireland. So, depending where your debtor is based, the legal system will be different. But before we start talking about the legal process, let’s look at the way professional collectors operate in the UK.
Typically, local debt collectors will use all means of communication: letters, emails, telephone, SMS, and personal visits, but depending on the kind of debt which needs to be collected, a different mix of these will be used. Written communications are of a non-threatening nature, merely an invitation to make contact to resolve the matter amicably. Compliance levels have increased to new heights in the UK to a point that a debtor now needs to be called a customer and the key focus of the collection process is the customer’s experience. Treating the customer fairly is at the heart of the Debt Collection Industry Code of Practice, with added attention being placed on vulnerable customers.
B2C Debts
For B2C debts, making the whole important initial contact will be key to success. Then a repayment plan can be agreed. Beware of what constitutes good practice in the UK: you can only expect the consumer debtor to pay what they can afford. It is not good practice to ask them to take up finance or “put the debt on a credit card” in order to pay your debt in full immediately. Debt collectors are actually expected to carry out an affordability test so they may need to tell the debtor: “no Sir, I don’t think you can afford to pay £100 a month, I think £75 will be more sustainable given the state of your finances”. When an instalment agreement starts, the collection agency is also expected to freeze the interest. Since 1st October 2017, when a consumer debtor is not cooperating and not paying amicably, creditors need to use the Pre-Action Protocol. This means they are not allowed to apply to start legal action unless they have gone through an official Pre-Action procedure. This is a formal process which consists in writing to the debtor will all the papers relating to and proving the debt and a number of forms which the debtor needs to complete. If the debtor does not react within 30 days, you can apply to the Courts. Otherwise this procedure can last up to 117 days, yes nearly 4 months before you can apply to the Court to get a judgement.
Note that traders and companies based on a partnership of physical persons (as opposed to registered companies) will also benefit from the Pre-Action Protocol. Access to personal data in order to locate debtors who may have left their original address is quite good., Remember that there is no obligation to register with your locality in the UK so personal data providers sell access to databases which are built specifically for this purpose from over 20 different data sources. We will continue to have access to these databases after 25 May 2018 as we have a legitimate interest to do so.
B2B debts
When your debtor is a business, you can charge Interest, Compensation and Collection Costs in line with the Late Payment of Commercial Debts Regulations 2013.
Late payers have officially been considered bad for the economy and there have been a number of EU and UK led initiatives since the late 90’s which have an increasing impact on the UK payment culture. It only took 25 years…!
The Late Payment of Commercial Debts (Interest) Act 1998 which was last reinforced in 2013, enables creditors to add 8% above the Bank of England base rate (currently 0.5%), plus a fixed compensation sum per contract of £40 for contracts under £1000, £70 for contacts between £1000 and £10,000, and £100 for contracts over £10,000, and to recover reasonable collection costs which you incur when using a third party such as a debt collection agency to recover your debt.
If your debtor is a registered company you can find all the information you need, free of charge, on https://beta.companieshouse.gov.uk/
In a B2B context, reminder letters and phone calls are professional, tactful, inviting communication, at least initially. As the debt becomes older, reminders become firmer but always business-like.
Using the legal system in the jurisdiction of England & Wales (remember Laws are different in Scotland and in Northern Ireland and there is no such thing as UK Laws) can be an expensive option but it is appropriate in some cases. Initially a “letter before action” is sent (normal post) giving the debtor 7 days to pay. After this, a claim is issued in the County Court. Court fees have drastically increased in 2015 so you need to check what the initial cost will be. (Find out more about the increase in court fees via our blog post: ‘Huge court fees increase in the jurisdiction of England & Wales’.
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Remember that you will not recover your legal costs in defended matters under £10,000 (Small Claims Track), but again there are options so ask your debt collection agency for advice. If the conditions are right to use the legal system and the matter is not defended, you will have a judgement within 30 to 60 days. Alone, this judgement will not give you your money back. It is merely the Court validating that you are owed this money. To turn your judgement into cash, you will need to enforce it. To do so, you can instruct the “Sheriff” (now called High Court Enforcement Officer) or make an application to the Court to seize wages, bank accounts, or for larger debts obtain a Charging Order on your debtor’s property.
The legal system in the UK is effective but can be expensive in defended actions when Lawyers will bill on a time-spent basis. So this means you will lose all control in respect of the costs and you will only be able to recover these if you win 100% of your case. Better a bad amicable settlement than a good Court case!