My Financial Tips

For small firms that are waiting to be paid for projects they have completed or products they have sent to a larger firm, once the deadline for settlement has passed they might need to think about their Debt collection choices.

The deadline for settlement might have been defined in the original contracts between the two or more parties, if not then the “Late Payment of Commercial Debts (Interest) Act 2002” sets this as 30 days from either date of the despatch of products, or the date an account was presented.

This law also permits the debtor to make a one-off charge to compensate for Debt collection work as follows:
For debts less than ?1000, the charge is ?40
?1000 to less than ?10,000, the charge is ?70
?10,000 and over, the charge is ?100

To make the Debt collection procedure easier, the law permits Interest to be charged on a daily basis at a rate of 8% over the Bank of England base rate, where if the debt becomes late on or before June 30th, the base rate at December 31st of the previous year is used and for debts that are late on or after July 1st, the base rate on June 30th will be used.
Although the small firm has this law at their disposal, if they have developed a good working relationship with the larger firm then they might feel it could tarnish their reputation if they suddenly notify the larger firm that they will implement it.

They might prefer to take a more measured approach and possibly take on a local solicitor who specialises in Debt collection and can be relied on to compose suitably worded Debt collection letters to persuade the larger firm to settle the bill. They might approach a Debt collection organisation that might have been recommended, if not then they are well advised to do some research into any that they are thinking of using. If the small firm has had to handle Debt collection before and used one of these choices they might wish to save on costs and try and do it themselves by ordering a Debt collection software system. It is essential that such an application contains a good set of instructions which explains the Debt collection procedure, the law, and the best way to compose Debt collection letters that are in a professional and unemotional tone, to retain that all important relationship with the larger firm.
With the do it yourself approach the small firm has to understand that they need to do the record keeping aspect of Debt collection, something that may be done by a solicitor’s office or a Debt collection organisation, as part of their service. The Debt collection software should address this component in that it should use a database to store information, such as the details of the debt being claimed, copies of Debt collection letters that were created and posted or emailed, scanned copies of documents received in the post, and any email conversations that take place. For phone calls, some Debt collection software might have a recording function to store the call as a sound file, or possibly speech recognition software that can generate a text copy, although this can be unreliable.
The record keeping is essential if the case the case goes to court so that the small firm can demonstrate what steps were taken in the Debt collection procedure prior to court, so any dubiously translated sound files may be thrown out. The Debt collection letters can be the key to a successful court case and so care must be taken with them.