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For small firms that are waiting to be paid for projects they have finished or items they have delivered to a larger organisation, once the deadline for payment has passed they may need to think about their Debt collection choices.
The deadline for payment may have been agreed in the original contracts between the two or more parties, if not then the “Late Payment of Commercial Debts (Interest) Act 2002” sets this as 30 days from either date of the despatch of items, or the date an bill was presented.
This legislation also permits the debtor to make a one-off charge to compensate for Debt collection activity as follows:
For debts less than £1000, the charge is £40
£1000 to less than £10,000, the charge is £70
£10,000 and over, the charge is £100
To make the Debt collection procedure easier, the legislation permits Interest to be charged on a daily basis at a rate of 8% over the Bank of England base rate, where if the debt becomes unpaid on or before June 30th, the base rate at December 31st of the previous year is used and for debts that are unpaid on or after July 1st, the base rate on June 30th will be used.
Although the small organisation has this legislation at their disposal, if they have developed a good working relationship with the larger organisation then they may feel it could harm their good standing if they suddenly inform the larger organisation that they will apply it.
They may prefer to take a more measured approach and maybe take on a local solicitor who specialises in Debt collection and can be relied on to create suitably worded Debt collection letters to persuade the larger organisation to settle the bill. They may approach a Debt collection company that may have been recommended, if not then they are well advised to do some research into any that they are thinking of using. If the small organisation has had to handle Debt collection before and used one of these choices they may wish to save on costs and try and do it themselves by purchasing a Debt collection software package. It is necessary that such an application includes a good user guide which explains the Debt collection procedure, the legislation, and the best way to create Debt collection letters that are in a professional and unemotional tone, to keep that all important relationship with the larger organisation.
With the do it yourself strategy the small organisation has to realise that they need to take on the record keeping side of Debt collection, something that would be carried out by a solicitor’s office or a Debt collection company, as part of their service. The Debt collection software should address this component in that it should use a database to store information, such as the details of the debt being pursued, copies of Debt collection letters that were created and posted or emailed, scanned copies of documents received in the post, and any email conversations that take place. For phone calls, some Debt collection software may have a recording function to store the call as a sound file, or maybe speech recognition software that can produce a text copy, although this can be unreliable.
The record keeping is necessary if the case the case goes to court so that the small organisation can demonstrate what actions were taken in the Debt collection procedure prior to court, so any dubiously translated sound files would be thrown out. The Debt collection letters can be the key to a successful court case and so care must be taken with them.