18 January 2016

Introduction: Recent Research by the Asset Based Finance Association reveals that “outstanding invoices from the construction SMEs currently stand at £7bn = 16% of annual turnover in the sector” and “construction businesses wait an average of 107 days for payment, while manufacturers wait 61 days on average.” In this article, BTO provides some top tips for debt recovery – how to get things right from the outset to avoid debt and what to do if you can’t recover payment.

Recent Research by the Asset Based Finance Association:

“outstanding invoices from the construction SMEs currently stand at £7bn = 16% of annual turnover in the sector”

“construction businesses wait an average of 107 days for payment, while manufacturers wait 61 days on average”

Get things right from the outset, to avoid debt:

• Compare your average debtor days with others in your industry. Set targets for reduction.
  
  
• Send out invoices on the same day goods are dispatched or services delivered - electronically, if possible.
  
  
• Don’t be afraid that chasing cash will cause upset. Be polite and professional and avoid emotion.
  
  
• Avoid doing business with known slow paying or non-paying customers.
  
  
• Don’t hesitate to turn down an order that might put too much pressure on borrowings.
  
  
• Ensure the specification for every order is clear, to avoid later disputes. Sort out any problems with an order before it becomes a disputed invoice.
  
  
• Ask for deposits for large orders, to fund purchase of materials. Seek advance and stage payments for any major work or bill weekly and ask for payment in seven days.

What if you can’t recover payment? Speak to us sooner rather than later! What we can do:

• Serve a ‘short form demand’ on a limited company, with a Registered Office in Scotland. This is quicker and cheaper than a statutory demand, which allows 21 days for payment. The company has 48 hours, from the date of service of the short form demand, to pay the debt or make an arrangement. If there is a failure to pay, liquidation proceedings can be presented to court after the 48 hour period has expired. As soon as the liquidation petition is sent to the court, the Sheriff / Judge may, if there are grounds to do so, appoint a Provisional Liquidator. A Provisional Liquidator has the power to freeze the bank account of the company and to take control of the assets. If there is money available to pay the debt, then this route is a sure fire way of making a quick recovery. A short form demand cannot be used if the debt is disputed.
  
  
• Seven day letters.
  
  
• Court proceedings:
  - Small claims actions < £3,000.00;
  - Summary cause actions £3,000.00 to £5,000.00;
  - Ordinary actions > £5,000.00.

• Diligence on the Dependence of Court proceedings. A genuine concern is that by the time court proceedings are concluded, the creditor will have little chance of getting paid because the debtor has either become insolvent or, they have hidden assets or otherwise transferred them out of reach. Diligence is simply the term for the various processes of debt enforcement under Scottish Law. If there are grounds to do so, diligence on the dependence can be obtained at the outset of court proceedings, as opposed to at the end. It is a provisional measure which can be used to secure money, goods, or property by preventing the debtor from disposing of them while the court action is ongoing. E.g. the debtor’s bank account can be frozen or, monies due to the debtor from a third party can be frozen in the hands of that third party. This is a very powerful tool.

Contact: Kirsteen Maclean, Senior Associate kim@bto.co.uk T: 0141 221 8012