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All posts by Douglas Millar

Corporate Insolvency & Governance Act 2020 – Update

The Corporate Insolvency & Governance Act 2020 was announced on 23rd April 2020, and introduced by the UK Government on the 25th June 2020, having received Royal Assent. The Act was introduced for a number of reasons, companies could get longer periods of time granted by Companies House to file their Accounts, Confirmation Statements & Postpone AGM’s etc.

Debt Collection During Coronavirus

From a debt collection and litigation perspective, the act temporarily prevents a creditor presenting a Winding Up Petition to court on the back of an expired Statutory Demand, for the period between 1st March 2020 to 30 September 2020.

The Act also has an additional clause, that during the period 27th April 2020 to 30th September 2020, any creditor wishing to present a Winding Up Petition to court on the grounds of the debtors inability to pay its debts as they fall due, which is normally the case in a debt collection scenario, would have to demonstrate to the court that the companies inability to pay had not been caused by the Coronavirus Pandemic. This would most probably be very difficult to prove to a Sheriff or Judge.

Last week on Thursday 24th September 2020, following spikes and clusters of the Coronavirus all over the UK, and further new restrictions and lockdowns being introduced, the Government extended the restrictions on Statutory Demands and Winding Up Petitions until the 31st December 2020.

Whilst we are in agreement with the Act, why it has been introduced and its effectiveness to protect businesses and their staff through the pandemic, there is two sides to this story which we feel may have been slightly over looked by the Government.

What are creditors supposed to do to keep their own cashflow going, if the debtor is unable to pay? They can raise a Judgment (England) or Decree (Scotland), but this is typically a very long process, and during the current times we find ourselves in Creditors need prompt payment of their outstanding accounts to keep trading as well as business that may have been badly effected by Coronavirus.

Debt Collect UK have been working right through the pandemic, and have found since the Act was introduced debtors are using it as an excuse not to pay, and are therefore withholding their payment until the restrictions are lifted, some in the hope that the creditor will go through some sort of insolvency procedure themselves due to their non-payment of the account, particularly when dealing with high value debts.

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Chasing Payment

When you get paid, the sale is complete. When a customer doesn’t pay, they’re hanging on to money that is rightfully yours and you should ask for it. You should have a routine system for following up non-payment that includes letter, email, and telephone, but be prepared to act more quickly if the amount is large or you are concerned about the customer.

Can you answer yes to all of these questions?

  • Did you agree the payment terms with the customer before you accepted their order?
  • Are you sure the invoice is accurate and no dispute has been raised?
  • Has the payment due date passed?
  • Has the customer confirmed receipt of the invoice?
  • Do you have proof of delivery for any goods delivered?
  • Does the invoice say how and where payment should be made?
  • Do you keep a record of all collection activity? It will be vital later if you have to engage a third party.

FIVE TOP TIPS

  1. If the invoice is large, call the customer before the payment due date to make sure it has been received and there is no query; this is good customer service.
  2. Make immediate contact when payment has not arrived, be assertive about what you expect and when you expect it, and make the consequences of non-payment clear. Follow up promises to make sure they’re met.
  3. If a customer persistently pays you late or makes excuses, check them out and consider whether you’re prepared to continue supplying on credit terms. It may be better to lose an order, or even the customer, than supply goods, not get paid and suffer a bad debt (when that happens you lose the goods and the money you’re due).
  4. Be polite, professional and persistent; do what you say you’re going to do when you said you were going to do it.
  5. Try to get customers to pay by electronic transfer or Direct Debit to avoid waiting for the cheque to arrive.