This introductory article discusses ways to recover your bad debt from your customers who won't pay for goods or services render or are late to pay for your goods or services.
You're running a business and providing a services or selling a products to your customers either be B2B (business to business) or B2C (business to consumers) you should expect to get paid for services render, or goods sold and on your term too. Either be you decide to offer a payment structure for payment the law of the UK state it is upto 60 days maximum. Furthermore by law you need to show that you try by all mean to recover your bad debt before passing them off as expenses on your tax return. Your are allowed to pass them off as expenses during the tax year. However if the following tax year you received that money you need to declare it as income received on your tax return.
Your business should offer to your customers a clear and comprehensive invoice preferably itemised detailing cost cleary and what your customers is being charge for and should have business details clearly mentioned, the customers details visible a reference number to identified good or services sold and your payment term clearly defined. For example: Invoice to be settled no longer than 30 days from date of invoice as if you do not issues correct invoices it will be difficult to claim your money if your customers do not pay you.
Procedure to Claim bad debt
There is a procedure to claim your bad debt should you find yourself in this situation. First you need to remind the customer that payment is overdue on account. You could offer another 30 days or a payment facility with a repayment schedule such as set weekly, fortnightly regular repayment.
Your repayment facility should be clear and time bound meaning with a start/end date and come with condition such as if you breach the repayment contract we have right to request the remaining amount within 15 days.
You could if you can afford it give more time to your customers to pay with another 30 days notice and a strong message stating if amount owed is not clear by the date specified you will start proceeding or informed your customer that you will not hesitate to take them to court. Or to avoid court you could offer another repayment facility but no more than two.
When all reasonable offer fails
When a payment become late you can claim interest and debt recovery costs if another business is late paying for goods or a service. You can agree a payment date. If you don’t have an agreement, the law says the payment is late after 30 days for public authorities and 60 days for business transactions after either: the customer gets the invoice, you deliver the goods or provide the service (if this is later)You can agree a longer period for payments from one business to another - but if it’s longer than 60 days it must be fair to both businesses.
The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract. You can’t use a lower interest rate if you have a contract with public authorities.
If your business were owed £1,000 and the Bank of England base rate were 0.5%: which translate to 0.085.
the annual statutory interest on this would be £85 (1,000 x 0.085 = £85) then divide
£85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23) after 50 days this would be £11.50 (50 x 0.23 = 11.50).
So given the above example you should be adding a daily interest of 23p to the amount owed hence let say's the £1000 and 30 days elapsed your reminder letter would have added daily interest hence £1006,90 outstanding your added interest should be clearly stated accompany with a revised invoice as the law requires you to send a new invoice if you decide to add interest to the money you’re owed.
Claiming debt recovery cost on late payment
You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it. The amount you’re allowed to charge depends on the amount of debt.
You can see the bracket of the charging amount of debt and what you can charge: up to £999.99 - £40, £1,000 to £9,999.99 -£70, £10,000 or more £100
Making a court claim for money
Make your claim online if you’re claiming for a fixed (‘specified’) amount of money. Download and fill in a paper claim form N1 if you’re claiming for an unspecified amount of money. You can also use the paper claim form to claim for a fixed amount. Send the paper form to the County Court Money Claims Centre a court fee is due when you make a claim. The fee for making a money claim online is cheaper than the fee for sending a paper claim form.
It is important for a business to recover their bad debt it helps your business to grow and get into profit, more money to pay your cost or supplier and you have worked for that money hence you should be paid.
You can use the service of a debt company to help recover your fund as most of them offer a no win no fee service, however it is only for the letter sent on your behalf as if they take the case to court on your behalf you need to pay their fee plus court cost fee. The percentage they charge vary depending on the time of the debt let say if they try to recovery a debt which is 2yrs old or more 50% of the amount recover in full is due to them if less than a year or a year between 10% to 20% of the amount recover.
You can make your claim online by yourself using link provided if you have some money owed. Girlfridayz can help you chase your bad debt too we provide this service under our back up admin services where we write your letter for you and make a claim online should you want to go to court. Our fee is affordable and we will charge you for making a claim for you too.
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