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Debt Recovery | HK News

Commercial Debts – What can my business recover?

| Published on September 10, 2019

Cash flow is the life blood to every business and if clients are not paying their invoices, many businesses can quickly find themselves in difficulty. The perceived high cost of recovering debt is often cited as one of the main reasons why companies decide not to try and recover money owed. In this article I will look at legislative provisions to aid the recovery of business debt and what other measures businesses can take to protect themselves.

What is classed as a Business Debt?

A common misconception is that debt only counts as a business to business debt if it occurs between two limited companies. This is certainly not the case and Late Payment of Commercial Debts (Interest) Act 1998 can be applied between two sole traders, partnerships, and even a sole trader that owes debts to a Limited company.

Establishing that the debt owed to your business constitutes a business to business debt provides you with a wider range of tools that, when used effectively, can maximise what your company can recover.

Statutory Interest

In addition to the capital debt, businesses have a statutory right to claim interest on late payments a rate of 8% over the current Bank of England Rate. Since 02 August 2018 this has been set at 0.75% which means that interest can be claimed at the rate of 8.75%. Late payment interest can be claimed from the date that your invoice became overdue to the date of payment or settlement, and it is therefore important that either your terms of business or invoices (or both) clearly state the due date.

Statutory Compensation

Further to claiming statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can claim statutory compensation on each overdue invoice. For each overdue invoice of up to £999.99 your business is entitled to £40 compensation, invoices between £1,000 and £9,999.99 entitle you to £70 in compensation, and invoices over £10,000 entitle you to claim £100 in compensation.

In circumstances where multiple invoices have not been paid by a single debtor company, the compensation that your business can claim on each invoice soon mounts up and can go some way to offsetting your legal costs for recovery.

What about the Legal Costs of Debt Recovery?

Unfortunately, the legal costs of debt recovery are not automatically borne by the debtor company, especially where an agreement is reached either before legal proceedings are begun or in small claims matters.

This can often put businesses off chasing easily recoverable debts or smaller debts as they think that the bill for legal fees will eat up the money that is recovered. There are, however, several provisions that can be put into place to mitigate the risk to your business.

Your terms of business should be your best tool for effective debt recovery. Carefully drafted terms of business, specifically tailored to your working practices, can create provisions such as allowing for recovery of legal costs from the debtor company. They can clearly state the rate of interest that will be claimed on late payments and can even allow for the retention of goods provided by your company in the event that payments are outstanding.

Used properly, statutory interest, late payment compensation and your terms of business can help ensure maximum recovery of debt with minimum outlay.

 

For further advice please contact the dispute resolution team at our offices in Poole on 01202 725400 or Dorchester on 01305 251007. Visit us at www.hklaw.eu and follow us @HumphriesKirk on Facebook, Twitter and LinkedIn

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