It is common in trading practice that your clients, whether they are businesses or individuals, due to some unknown reasons, keep delaying paying an owed amount of money. If you find yourself in that situation, here is a summary of what you need to do to recover the amount of debt, including taking legal action.
Finalise the owed amount
Before thinking of taking further steps to request the payment from your client, you would wish to ensure that:
You have an agreement (ideally a written contract) between you and your client in place;
The exact amount that your client has to pay, normally that would be the total amount of all unpaid invoices, and whether there is any dispute over that amount of money;
Whether your client is in financial trouble and they have financial capability to make payment;
Sufficient budget in case you decide to take legal action.
Send a demand letter from your solicitor
Once you have considered the above checklist and decided to proceed, from our experience, your first step should be sending a demand letter to your client as ‘a final chance to make payment’.
Sending a demand letter before commencing any legal action in not only a gesture of goodwill in the commercial relationship between you and your client, but also shows that you are ready to take further steps if the outstanding balance is not settled, therefore prompts your client to pay.
If you want to maximise the effect of the demand letter, involving a solicitor may be a good solution. In fact, by having a solicitor, you can make sure the amount you are claiming and the payment schedule is reasonable, enforceable, in accordance with the agreement and the law.
Taking legal action
If your client fails to make payment after receiving the demand letter and shows no intention to pay the unpaid invoices, it could be the time to commence legal action. At this stage, depending on the amount you are claiming, you will have to file your claim in different courts.
In case the claim is up to £10,000, it is classified as small claims track and the County Court will be the one who makes the decision.
If your claim ranges between £10,000 and £25,000, it would go to the County Court as fast track claim.
For very complicated claim of which the value is of over £25,000, it will be decided by the County Court under multi-track route.
Alternatively, you can use make a money claim online by using Money Claim Online (MCOL) services provided by HM Courts & Tribunals Service Internet. Claiming money online, in some cases, would be more convenient.
What you need to do is registering, providing required information, details of the defendant (the client whom you are making claim against), claim particulars, and following the steps as showed in the guidance.
There are, however, some sections you would need to pay attention and read the guidance carefully before you make payment for MCOL services. You will have to make sure whether each defendant is individual (that would be the case your client is a sole trader) or organisation (such as limted company). Or in claim particulars, unlike traditional way, the online form only allows you to input a total of 1,080 characters.
How to minimise the risk of payment dispute?
In commercial relationship, we believe that the last thing you want to do is meeting your client in the court relating to a dispute over to an amount of goods or services payment. Taking legal action against your client is always the last resort because it affects the commercial relationship between you and them.
From our experience, the most important step helps preventing a future dispute is having a well-drafted contract or agreement in place. At NIDO, we have solicitors specialised in commercial contract with experience in drafting and reviewing sales of goods, service providing contract, and civil litigation to advise you on your needs.