Number of companies seeking legal advice on bad debt soars
The number of businesses in Northern Ireland seeking legal advice on bad debt is soaring, a leading law firm said today.
Michael Neill, a partner who leads the litigation and insolvency teams at Belfast practice Cleaver Fulton Rankin, said he had seen a sharp rise in calls from worried owners of small and medium sized enterprises (SMEs) suffering significant delays in the payment of invoices.
The time spent chasing bad debt and the pressure delayed payment placed on cash flow was costing SMEs dearly, he said, and many had little idea what to do about it.
“As we move further into troubled economic waters, the problem of bad debt only rises higher up the agenda.
“Small companies in particular really struggle to survive when their suppliers are late in making payments. It is crucial that businesses facing such problems are aware of their rights,” said Mr Neill.
He said in legal terms there were two things to remember, firstly a supplier and a purchaser could agree their own contractual arrangements as to a remedy for later payment.
Secondly, if contractual arrangements for late payment were not made, there was a statutory right to charge interest on the unpaid amount.
“The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to charge a company 8% above the applicable base rate for the period between the date due for payment and the date of actual payment,” he said.
Mr Neill cautioned: “It's important to get your terms and conditions right. Ensure they state clearly how and when payment is to be made. Also make sure the consequences of non-payment, and the steps you can take to enforce payments, are stated.
“Terms of trade need to be clear and reasonable otherwise you may be unable to rely on them in the event of a dispute.”
If a debt was no longer collectible, it should be capable of being written of against tax, he said. However Mr Neill said prevention was better than cure and advised there were ways of minimising the risk of late payment.
“Don't be afraid to carry out credit reference checks on customers, and see if they have a history of non-payment. Obtain references from third parties. If in doubt, try and persuade the customer to provide some money up front, or offer a discount for prompt payment,” he said.