How Can My Business Recover Money Owed By a Customer?

In some cases, your customers may refuse to pay what they owe you. This can be for various reasons, including dissatisfaction with the product, delayed payment, or simply bad faith. Recovering money owed by the customer is highly important for all businesses, as it is crucial for maintaining good cash flow. This article will outline different options for debt recovery and offer some guidance on the best course of action to take to get paid on time. 

Provisional Steps

You can protect yourself against potential non-payment by getting your customer to agree to certain terms and conditions. Additionally, you should send out an invoice immediately after a transaction. This should set out the agreed price for the service or product you have supplied. This is a good way of keeping a payment record, and you can use it as evidence if the case escalates to court proceedings. 

Talk to Your Customer

Before considering any legal steps as part of the debt recovery process, you should start by contacting your customer. Sometimes, they may have simply forgotten, or were waiting for a paycheck. 

If the customer has not responded to a friendly reminder, you can continue to send them a series of reminders before letting them know that you are considering legal action. 

Letter Before Action

A letter before action, sometimes known as a ‘letter of intent‘, explains your plan to initiate court proceedings. A letter before action warns the customer that they have outstanding debt, and that you are will be proceeding with legal action if they do not pay. This can be a good idea if the customer deliberately takes their time with the payment. They may pay immediately to avoid having to pay legal fees.

Mediation

If your customer is responsive to your reminder but cannot pay, you may benefit from a mediation process. Mediation is a legal proceeding in which you hire an independent mediator to help you and the customer come to an agreed solution. Mediation is important, because a court will usually ask you to attempt a mediation process before initiating more formal court proceedings. 

Court Action

If nothing else works, you can take court action against the customer. This will likely be in a small claims court if the payment is not part of a complex or highly valuable transaction. The court will have the power to order the customer to pay any outstanding invoices. 

A county court judgment will remain on the customer’s credit records for six years and may hinder them if they try to get a loan. It may be a good idea to outline the potential of a county court judgment to your customer during your letter before action or during your mediation. This will demonstrate the consequences of a failure to pay.

Statutory Demand

You can also use a statutory demand against the customer. A statutory demand does not require a lawyer. It threatens the customer with bankruptcy if they fail to or cannot pay. However, a statutory demand can only threaten someone with bankruptcy if they owe you over £5,000. 

Debt Collection Agency

Alternatively, you can pay a debt collection agency to handle the issue for you. Debt collection agencies specialise in debt recovery, and can help get your money back if you are a small business. 

Key Takeaways

If a customer owes your business money, there are various debt recovery options available to you. The first step should always be to talk to the customer and send them a friendly reminder of their debt. You will resolve some cases at this point. However, if the customer fails to respond to your requests, you can proceed to other options. All in all, you should always keep invoices on hand, as they will be useful evidence throughout the process.

If you need help with recovering debt, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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