Earlier this year, I&L received a phone call from a distressed subcontractor (subbie). They claimed that for months, West Midlands construction firm the Shaylor Group had been ignoring their requests for payment of an overdue invoice.

After a brief consultation, they instructed us to recover the debt on their behalf. Although we were made to jump through a lot of hoops and loops, eventually the Shaylor Group paid £44,000 to settle the invoice, and cover our expenses.  

Then, just a few months later, the Shaylor Group fell into administration owing almost 700 creditors £47m. The sad thing is; most of those creditors are small companies who unknowingly provided labour and goods they purchased virtually interest-free.

In effect, they became defacto lenders, supplying labour and materials, even though their invoices will probably remain unpaid.

Invariably in these types of situations, unsecured creditors get shafted and the big companies end up benefitting from all the resources without ever having paid for them. 

Update terms and conditions

To avoid this happening to your company, make sure all quotes, sales orders, and contracts include a provision that states counterclaims nor any monies you owe may be set-off against an overdue payment.

These conditions are essential because they compel the debtor to pay the invoice promptly. They also ensure the overdue payment remains independent of any claim made against your company.

Without these stipulations, it’s relatively easy to circumvent payment of an invoice; simply fabricate a dispute. If debtors repeatedly ignore your invoices, why not consider instructing a third party to recover the funds on your behalf?

Factoring in the cost of a third party to manage credit procedures can be a good idea. In many instances, they’ll collect payment for overdue invoices more professionally and dispassionately than you.

Furthermore, removing the burden of invoice-chasing frees up valuable time that can be spent building your business.

Feel free to send I&L examples of your company’s sales contracts and orders for us to assess their effectiveness in credit management and commercial debt recovery.

The post Tips for collecting long-standing debts first appeared on Company Debt Recovery.

This is particularly bad news for roofers, plumbers and other subcontractors (‘subbies’). Why? Because in a competitive market, lead contractors sometimes take advantage of their vulnerabilities and avoid paying them.

In an attempt to increase profits, they often put forward lean budgets when tendering for work. For example: a large construction company may offer a bid of £900k to expand a local authority secondary school, knowing the job will cost £1m.

Once they get the contract, cost-effective roofing, plumbing, electrical and gas subbies are called in to reduce the expenditures to £800k, thus creating £100k in profit.

Some lead contractors have no intention of settling invoices. They find fictitious faults and reasons to withhold payment and can generate additional profits by repeating this process with multiple subcontractors who effectively act as their de facto bankers.

To be fair, this practise is not endemic, but an established subbie will have found themselves in this situation on at least one occasion throughout their career.

The funny thing is; we all know that you can have a solid, 30-year relationship with your bank, but if you were to ask them for an unsecured loan of £30k, they would say ‘no,’ and probably want a mortgage on your assets for collateral.

Yet, every day, traders up and down the country leave themselves completely exposed by giving away their labour and materials in return for a promise of payment in 30 to 60 days.

This is generally how debt is created, and the reason liquidators and administrators have such little regard for unsecured creditors, who they consider ignorant.

How to deal with clients who won’t pay

What can subbies and tradesmen do to ensure they are paid promptly for work completed and recover unpaid debts?

Firstly; they must tidy up their paperwork and make sure invoices clearly state that:

1) All queries must be raised within 14 days of receipt of an invoice.
2) All undisputed invoices overdue by 14 days may be subject to insolvency proceedings.

A subbie who has completed all their work in accordance with the contract and issued an invoice, which is undisputed and overdue, may consider issuing the creditor with a winding up petition.

Although winding up petitions should not be used as debt recovery instruments, they are a viable option, especially if a lead contractor has exposed you to unnecessary losses and used their credit terms as an interest-free, unsecured funding facility.

Once a winding up petition has been served, the creditor will act swiftly to resolve the problem; get the petition withdrawn; and avoid having their bank accounts frozen.

Call today on 020 7504 1300 or click here: https://companydebtrecovery.co.uk/our-services/issue-creditors-winding-up-petition/  for confidential and free advice on how to present your debtor with a winding up petition.

Image credits:
http://watchdog.org/59330/nv-schools-got-470m-for-construction-may-get-more/

The post How should builders and tradesmen collect overdue debts? first appeared on Company Debt Recovery.

Winding up petitions issued by creditors against firms based in Central London increased by 39 per cent in October 2010 compared with 10.5 percent in the rest of the country, a new study has revealed.

The increase is simply a reflection of the government cutbacks and will probably continue throughout 2011.

It’s also evidence that creditors are no longer turning to the county court to recover debts; they’re going straight to winding up because it’s a more compelling method of collection, although it is an abuse of court and legal process.

Winding up petitions can be an effective debt collection tool, but only if they’re served correctly.

An appropriate example came last summer when I was contacted by a client who’d received a winding up petition from a firm of solicitors and was due in court in three weeks.

In order to comply with insolvency rules, proceedings for a winding up petition must be advertised in the London or Edinburgh Gazette at least 10 days before a hearing, which didn’t leave much time for the law firm to act.

I contacted the solicitors on behalf of the client to negotiate payment terms and asked them to discharge the debt and not advertise the petition in the paper on the grounds that once advertised, it cannot be withdrawn and the recipient’s bank accounts will be frozen leaving them without funds to pay the debt.

The law firm agreed, but in doing so broke insolvency rules (the winding up petition must be advertised).

As a result, if the client failed to make any payments before the hearing, the winding up petition was invalid and thus unenforceable; allowing them to pay the debt at a later date and continue trading.

Are you being served? If so, contact Insolvency and Law now for confidential advice and guidance. Call 0207 504 1300.

The post Winding Up Petitions Increase, But Are They Being Served Correctly? first appeared on Company Debt Recovery.