Commercial debt claims: the basics

In Debt

As every successful entrepreneur will tell you, maintaining a good working relationship with clients is crucial to the success of a business. But when your invoices go unpaid for a prolonged period of time, you are sometimes faced with no alternative than to pursue legal action against your client.

If you have performed work for another business or an individual as a commercial arrangement, here’s some of the basic information you need to know.

When does an overdue invoice become a legal issue
Technically, if you have provided a service to someone else by meeting all of your agreed specifications, then you should be remunerated for your work. If the client has disputed your timesheet or invoice in the first instance, then it is your responsibility to rectify the situation to meet your client’s reasonable expectations. However, if your invoice and payment terms have been accepted without complaint then you should expect payment by the allotted date.

Sadly, it is commonplace for clients to simply ignore their contractors’ requests for payment – leaving you with no choice but to pursue legal action.

Once your client goes beyond your payment terms (note that you may not pursue faster payment than that stipulated in your invoice) you should take care to ensure that any further correspondence with your debtor – emails, letters, notes taken from any telephone conversations – may be valuable in court at a later date.

It is important to ensure that your initial correspondence strikes the right balance. In the days following the payment deadline, you may wish to err on the side of caution and retain a professional and amicable approach. After all, if the client has simply overlooked payment or is experiencing short-term cash flow issues you may not wish to take an accusatory tone – particularly if you wish to continue the working relationship.

Should the matter eventually reach court, it is also important that this communication is not unduly inflammatory. Simply requesting payment within 7 days is sufficient at this stage.

Should this request for payment fail, you may wish to consider pursuing payment with the help of a legal service provider to draft a letter before action to the client on your behalf. A letter before action will provide notification that payment is overdue and that if the debt is not paid within a set period of time, usually 7 days, you will be pursuing legal action. It is a good idea to instruct a respected legal service provider to draft and send this letter as it shows your intention to take the matter further if immediate payment is not made.

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A commercial dispute expert is also well positioned to help you with the next step in pursuing compensation, which is to write a letter of intended proceedings. This is an important step as it should offer your client the opportunity to seek alternative dispute resolution and avoid court proceedings. It may also include an outline of your intention to use HM Courts Service’s MoneyClaim Online portal – something your legal service provider can assist with.

The final step in the process is to file with MoneyClaim Online. At this stage your client falls into one of two categories – refuses to pay or unable to pay.

If they are unable to pay, your client may be forced to wind up their business and a third party will be brought in to sell the assets of the business and service the debt. If you are not the only contractor owed money and the assets are not worth enough to cover your costs, you may only receive a portion of your outstanding invoice.

If your client refuses to pay and wishes to defend their position, you may then be forced to take your case to county court. Your chosen legal service provider will advise on this process and help you to establish whether the value of the debt is worth the cost of taking a matter to court.

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