Small firms in South Wales are being warned to shake off the festive cheer and begin 2007 with a tougher stand against debt evaders, or their businesses could face financial problems in the months ahead. Recent UK figures showed that small firms are most vulnerable to bad debts, with 56% of businesses who employ under 20 staff suffering from late payments, compared to only 29% of larger companies.

Specialist debt recovery lawyer Robert Jerome of Harding Evans Solicitors blames changes in bankruptcy laws and softer cultural attitudes towards owing money for what he described as “an increasingly cavalier approach” to paying business debts on time. This, he said, put an increasing number of firms at risk of a cash flow crisis.


 

He urged firms giving credit to customers to limit or eliminate their losses by managing the risks up front and arming themselves with the information they need to put a tighter squeeze on potential defaulters.

Robert said “Changes in the law mean that bankrupts are automatically discharged within a year and it’s now harder for creditors to claim against their property. In addition the court process for reclaiming debt is also slowing down dramatically.

“When you couple all of that with the growing culture of easy credit, you can see why individuals and businesses don’t take debt as seriously as in the past. Sending a firm a statement of overdue debts once meant something. Now more and more debtors are just having a laugh,” he added.

His comments came ahead of a seminar on debt recovery being organised by Harding Evans on 30th January at the Celtic Manor, Newport.
Robert, who has over 20 years legal expertise, said small firms can do more to protect themselves and can even increase their income through tougher action on debt. He urged those giving credit terms to customers to:

• Get as much background information about new customers as possible at the outset, including contact details such as the managing director’s home address or club memberships. It will be harder to get such information later if the debtor is trying to evade payment.

• Where possible, get personal guarantees from the directors of limited companies.

• Chase debts early before they become a problem.

• Levy the statutory late-payment fee – between £40 and £100 depending on the size of the debt, as well as late payment interest charge which is currently 13% or 8% above base rate.

• Watch for early warning signs and implausible explanations for delays – such as firms waiting for a new chequebook to arrive, having to wait for the next cheque run or suffering from a postal strike in the local area. These are either untrue or can easily be checked out.

• Take professional advice on whether a debtor genuinely can’t pay or simply won’t pay.

• If action is needed, issue a court “order for questioning” against the company secretary, who is often the managing director’s wife. This frequently provokes a reaction from the MD and results in early settlement.

• Don’t be too hasty to agree to Individual Voluntary Arrangements – an insolvency approach which spreads payment over a period. These frequently break down after only one or two payments.

• Be wary of offers from debt management companies acting on behalf of debtors. They make their profit by persuading creditors to accept less than they are owed.

Mr Jerome said that, in his experience, firms are becoming less aggressive in pursuing late payers and defaulters.

“Businesses are concerned about the cost of taking legal action, but many are unaware that cases can be taken on a no-win no-fee basis or that they can levy a late payment fee and charge interest, all of which can more than cover the cost of taking action to recover the money owed,” he added.

“It is actually possible to turn your credit control operation into a profit earner because late payments chased properly and promptly can not only result in early settlement but in additional income too,” he said.