Credit Control Frequently Asked Questions

Is your business waiting on late payments? For answers to your questions about late payments, compensation and legal action, please consult the following FAQs. For additional information, do not hesitate to contact STA International.

Chasing Late Payments

When should I follow up on a late invoice?

If payment hasn’t been received by the date specified on the invoice, call your customer, and send a statement of the account to them, which should be taken as a reminder. This will hopefully nudge them into making the payment before you have to escalate the process.

When should I send an overdue letter?

The first overdue letter/ email should be sent a week after the due date for the invoice payment. It’s important at this stage of the process to keep things as amicable as possible, so the communication should take the form of a polite reminder that payment is now overdue for payment.

Can I add a late payment fee to invoices?

The Late Payment of Commercial Debts (Interest) Act 1998 provides for Interest and Compensation Costs to be charged. (Note: You can only use this Act if your terms have no contractual late payment terms included.) You should not add interest and compensation costs to your invoice, instead you should put your claim in writing. Interest accumulates on a daily basis, so the longer the debt is unpaid, the more interest racks up. If your claim for interest remains unpaid, then you need to contact the customer again to chase, explaining that interest is continuing to accrue.

How much can I charge on late payment fees?

The maximum Compensation Charges for late payments, specified in the Late Payment of Commercial Debts (Interest Act) 1998, are as follows:

Maximum Late Payment Compensation Charges
Invoice Value Late Payment Charge
£0.01–£999.99 £40
£1,000–£9,999.99 £70
£10,000+ £100
+ You can also add 8% interest above the base rate.

What are my options if payment is still not made?

You can instruct a debt collection agency or a solicitor to recover the debt on your behalf. The collection agency can charge its recovery costs to your customer and, when they do so, you will incur no additional costs for their collection. The solicitor can charge your customer with some, but not all, of its charges.

Can I still take action on recovering old debts?

The older a debt is, the more difficult it is to recover. You may make a legal claim for payment for up to six years after the due date in England, Wales and Northern Ireland – the limit in Scotland is five years.

How can I recover debts without damaging my customer relationship?

Every customer relationship is different, but the best way of recovering debts from a late payer without damaging your relationship, is to make sure it is clear what the expectations of payment are at the point-of-sale.

Discuss the situation in a friendly way and explain what steps you are entitled to take as per the payment agreement, including late payment charges, use of a debt collection agency, and potential legal action. This will ensure that they have a clear picture of what to expect if they continue to fail to pay. If they continue to delay payment, you should consider if this is the kind of customer you can afford to do business with.

Legal Action

What should I do if the customer claims I have not fulfilled the contract?

You should present all of the evidence at your disposal, such as receipts and signed delivery confirmations, if they will prove that you have fulfilled the contract.

A level of service dispute might be less clear-cut and more difficult to resolve. If there are genuine shortcomings regarding your service that caused issues for your customer, you may need to aim for a compromise, which a solicitor will be able to advise you on.

If your attempts to reach a solution are rejected, you will at least be in a stronger position (as long as you can prove that you tried) if the case ends up in court than you would be otherwise.

When should I use a solicitor?

A solicitor should be employed at the point specified in the payment agreement and normally after all else has failed. Letting the customer know that a solicitor is now involved can be the factor that ensures they pay, as a lot of firms specialise in negotiating financial disputes.

However, you should keep in mind that it can be more effective to keep the dispute out of the courts for as long as possible. Allowing the solicitor to negotiate payment in an amicable manner until there is no other choice should be the preferable option for all concerned.

What alternatives do I have before taking legal action?

If you have exhausted your resources in terms of sending reminders and late payment requests with no result, there are a few alternatives that can be taken before embarking upon legal action.

One step you can take is to involve people higher up in the customer organisation, such as the finance director or any other relevant senior staff who might be able to influence the quick payment of the debt.

Additionally, you could emphasise a longstanding and amicable relationship where relevant to do so. State that you have supplied a high-quality service or product and you wish to maintain the mutually beneficial and friendly relationship you have had with the customer up to that point, and this may do the trick.

However, remember that there is only so long you can wait for payment to be made – provide an escalation date in your customer agreement and use it as described, whether it involves a debt collection agency and/ or a solicitor. Whatever the agreement, stick to it.

What legal options do I have?

The court your debt enters into is determined by its size. Most claims will be pursued in the county court, though larger sums will be dealt with by the High Court.

Debts up to £10,000 are assigned to the small claims track, which is a simple and relatively informal and inexpensive way of resolving financial issues in the county court.
Debts between £10,001 and £25,000 are assigned to the fast track in the county court. This can be a complex and expensive procedure.
Any claims over £25,000 are dealt with in the High Court, which uses the multi-track procedure. This can also be complex and expensive to follow through.

Additionally, any company that owes over £750 can be issued a statutory demand for payment in a specified format. If this payment is not made within 21 days, the court can be petitioned to wind the company up. This is a significant step that should not be taken without prior advice.

In Court

How long until I receive my late payment?

The time it takes to receive a late payment depends on the way in which the money will be paid back to you. For example, if the court orders a Warrant of Execution, bailiffs will be able to collect money or seize goods almost straightaway, but if a Charging Order is utilised, it will probably be a while until payment is received.

How should I prepare for a court case?

Unless you’re planning on representing yourself, all you should do is make sure that the relevant paperwork (invoices, signed agreements and so on) and any other admissible evidence is gathered together for the court and legal teams to peruse. Your solicitor in particular will need them to understand your side of the dispute and strengthen your case.

What are my options for 'enforcing Judgment'?

Depending on the defendant’s legal status and financial circumstances, you might employ a Warrant of Execution, a Third Party Debt Order, an Attachment of Earnings Order or a Charging Order.

Your solicitor will be able to advise you with regard to which option you should take.

Warrant of Execution: If the customer has assets or goods that can be sold, a Warrant of Execution enables bailiffs to either collect money owed to you or seize those assets from their property to sell at auction.
Third Party Debt Order: If the customer has money in a bank or building society account, the Third Party Debt Order compels the bank to put the amount owed to you aside, and the customer is offered a hearing before it is paid to you.
Attachment of Earnings Order: If the customer is employed, the Attachment of Earnings Order is used to compel their employer to deduct a fixed amount from their monthly earnings until the debt is paid off.
Charging Order: If the customer has assets that could be sold, a Charging Order prevents them from selling them without paying you first.

How long will court action take?

The length of time court action takes can vary a great deal – most of the time it will take a few months to bring a case to court but then the actual court action can take less than a day. The date and duration of the case will be confirmed in the notice of allocation.

Small claims will generally take about three to six months to come up with a hearing date, though the case itself will probably be resolved on that date.

Larger claims cases can be more drawn out – a fast-track case can take the best part of a year to come to court, while a multi-track case has been known to take as long as two years to get to trial.

Can I claim the court fees, issue fee, etc.?

As far as small claims are concerned, you can claim the court fees from the customer, but you can only claim limited amounts back for any other costs and expenses that have been incurred from lost earnings.

The costs involved with large claims are significantly higher and even if you win the case, you’ll still probably have to pay at least some of your costs. If you lose, or if the judge doesn’t think you made enough effort to settle out of court, you will have to pay all of your costs and even the customer’s costs.

Can I report a disqualified director?

You can report a disqualified director to the government if they are:

Working as a company director or member of a limited liability partnership (unless the court has given them permission to do so)
Involved in the promotion, management or formation of a company (unless the court has given them permission to do so)
Acting as an insolvency practitioner
Breaching any other restrictions as specified in a ban

However, you must provide information and evidence that backs up your claim.

How do I prove the company can’t pay its debts?

The evidence accepted by a court that a company can’t pay its debts includes:

A certificate of personal or substituted service that confirms you gave a statutory demand to the company.
A bailiff’s statement showing that the full value of debt could not be recovered from the company’s assets.

Other evidence may also be accepted, depending on the court.

How can I wind up a company?

You can petition a court to wind up a company that owes you more than £750 and hasn’t paid within 21 days of a statutory demand.

However, this isn’t a guarantee that you will receive any or all of the money you are owed, and it will cost a total of £1,530 (which may be repaid) to petition the court, so you need to be sure that this is a course of action worth taking.

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