Bad debt of an accounting practice

Bad debt of an accounting practice

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Hi. Been in practice number of years and not once had a bad debt, until now. I have a client who's an awkward so and so, he always wants something for nothing, always complaining about his customers and life in general. I'm going through the process of weeding out the dross from my practice and rather than turning a job down I've up'd my fee to the point the client wants to jump ship. The client had two years of fees outstanding c£6k with bits and pieces. The new accountant asked for clearance, before giving clearance the client spoke to me confirming he'd arrange payment but needed clearance asap. Like a trust worthy fool (I'm on good terms with all my clients, not experienced bad debt and can get on with awkward clients even this chap) I gave clearance only for the client to renege on payment, effectively lying to my face. I've since spoken to him to chase payment to which he said he wasn't happy with the work over the last two years and wants to negotiate a better price? He never once mentioned he wasn't happy until he's been asked to pay, also I have email threads where he indicates he's happy with the work done; and of course an engagement letter which he signed agreeing to my fee structure.

What's the best way to recover the debt? I've not issued any red letters of threat of legal action. Presumably there is a process which I need to go through: letter 1, letter 2..... red legal letter, then court summons. I know how obtuse the man is and know that despite his talk he has absolutely no intention to pay but every intention to waste time. Can I go straight to a court summons in a small claims court? If so what steps do I need to take?

Alternatively a google of debt collection agencies reveals millions of internet firms, all seem credible but I suspect a lot are useless, wasting time, charging an upfront fee and not recovering the cash? Can you advise the best route: go it alone at a small claims court or use a debt collection agency? What are the advantages and disadvantages of both?

Replies (28)

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By ShirleyM
29th Nov 2013 13:49

Personally, I would go for small claims.

I went down that route twice, in my early days of practice, and it was much simpler than I anticipated. So long as you can produce some documentary evidence, nicely organised and indexed, rather than your word against his, you will be on sure ground.

Send him a 7 day letter, then if he doesn't pay .... whack in a claim.

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Glenn Martin
By Glenn Martin
29th Nov 2013 19:47

Dont mess about

send 7 day letter, followed by letter from Thomas Higgins then do small claim "money claim on line" to push the matter on. 9 times out of 10 when he receives the court papers he will pay or agree settlement as will not want to risk a CCJ. There is always the 1 in 10 however who fight for grim death.

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By AVB
29th Nov 2013 14:03

Thanks for the advice Shirley. When producing a seven day letter do you have to use any special wording such as "without prejudice..."

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Stepurhan
By stepurhan
29th Nov 2013 14:18

Lesson learned

Hopefully you will be able to get the money back anyway, but regardless learn from this. Don't let clients get away with not paying two years of fees, especially at this level. An easy trap to fall into if you get on with your clients I know, but you don't want this to happen again.

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By AVB
29th Nov 2013 14:43

Thanks Glennzy.

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Replying to ireallyshouldknowthisbut:
Red Leader
By Red Leader
29th Nov 2013 14:47

agree with Glennzy

Use Thomas Higgins.

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By ShirleyM
29th Nov 2013 14:47

I think I filched a 7 day letter from the internet

You should find one somewhere, and then just modify it slightly. Make sure you mention the extra costs if it goes to court.

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ghm
By TaxTeddy
29th Nov 2013 14:57

Classic dilemma

Believe me, AVB - you are not alone. Actually, you are probably just too nice.

It's the classic problem of the small practitioner where you know the clients very well - some will take advantage of you, just because they can. I think we all expect our clients to treat us as we treat them. But they don't.

Ultimately, I learned to be more 'arms length' and treat my practice more like a business and less like a donkey sanctuary.

But it takes a few harsh lessons along the way.

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By bernard michael
29th Nov 2013 14:59

Don't mess around with this serve a Statutory Demand on him. You can do it yourself or employ a solicitor if you are doubtful.SD's tend to concentrate the minds of recalcitrant debtors remarkably quickly. It is capable of being overturned if he employs a solicitor must most of the time this never happens and they pay up.

Not meaning to be patronising but I have assumed you know how SD's work

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By AVB
29th Nov 2013 15:24

Good advice all round. Thanks guys, and you're right I need to be a bit tougher in future.

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By AVB
29th Nov 2013 15:30

bernard michael, you're not patronising. As I said I've little experience in this area, so how does a SD differe from a 7 day letter? Thanks

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By bernard michael
29th Nov 2013 16:00

An SD is a formal demand that the debts be paid within 21days. If the debtor fails to do this you can immediately present a Winding Up Petition ( for Ltd companies) or a Bankruptcy Petition (for sole traders). The SD can be rejected by the courts if the debtor presents evidence that there is a triable issue better argued by a normal court demand ( eg the debt isn't due and payable). It tends to concentrate the debtor's mind wonderfully. Solicitors don't charge very much for preparing an SD and for £6000 it's worth it

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Replying to Mike Bath:
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By elvisisking
17th Dec 2013 12:35

Statutory Demand

bernard michael wrote:

An SD is a formal demand that the debts be paid within 21days. If the debtor fails to do this you can immediately present a Winding Up Petition ( for Ltd companies) or a Bankruptcy Petition (for sole traders). The SD can be rejected by the courts if the debtor presents evidence that there is a triable issue better argued by a normal court demand ( eg the debt isn't due and payable). It tends to concentrate the debtor's mind wonderfully. Solicitors don't charge very much for preparing an SD and for £6000 it's worth it

@ Bernard Michael, sorry I hope I'm not stepping on our toes, my understanding is a statutory demand must take a specific form if you are to be successful with a Winding Up Petition. The cheapest way to obtain a water-tight Statutory Depand is through the Small Claims Court, anything that doen't have the regulation of a Court Order (and providing you have complete the Pre-action Protocool) will be open to attack from the debtors solicitors - this will just run up legal fees, and if the Statutory Demand was to be thrown out means you are back to square 1.

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By Craig Whiteside
29th Nov 2013 16:33

If they're not paying, they're not clients (ex. pro bono)
I've seen this a lot with various business's I've been involved with in the US & UK, and I've always handled it in a comparatively hard-ball manner. Moochers are the same wherever you go. As far as I've ever been concerned a client ceases to be a client when they fail to dutifully take care of the agreed fee for valuable services they have beneficially received. I've always taken the view that when this mutual arrangement breaks down, then it becomes something else that must be handled differently, i.e. when the client becomes a timewasting freeloader, essentially thieving from you, the situation must be remedied swiftly, and decisively. Pussyfooting around with reminders etc isn't going to work; it's straight into court with all the documented evidence you have, no messing around.

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By AVB
29th Nov 2013 17:10

Craig, I feel the same way. This is no different to theft. They've had two years of service and never complained but now don't want to pay. Their arrogance beggars belief. I'd like them convicted of theft, why isn't this a criminal case?

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By jonsa
03rd Dec 2013 11:55

Complaint

Nobody else has mentioned your comment that he was not happy with the work over the last two years.  Everyone knows this is just a lever to reduce fees and he may use it in a defence against the SD.  Stick to your guns as they rarely come up with any specific detail for a complaint.  Of course it may be you have to warn your PI insurers of the possibility.  Be harder - this is business.  Only be a "donkey sanctuary" as Taxteddy mentions, when you want to be.  Jonathan

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By Whitnalls44
03rd Dec 2013 12:02

standing order

We went through a bad patch with bad debts and now are very aggresive and clients tend to pay us quickly now because they know we hassle them - also we will not take on new clients , except in very exceptional circumstances, without a standing order arrangement from day one or a payment on account if work is needed immediately.

 

 

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By CatherineR5
03rd Dec 2013 16:06

Use Thomas Higgins...

 

 

http://www.thomashiggins.com/

 

Their seven-day letter has usually been sufficient to flush out payment for me in the past, and costs something like £2.50.

 

If that doesn't work, go through Small Claims - again, filing the claim usually produces results.

 

 

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By macaulay147
03rd Dec 2013 17:48

Postcard

A friend of mine has a noval way of chasing bad debts.

Once the usual reminders have been sent and ingored the reminders start being sent by way of a postcard. Being in a rural location where people talk this has produced effective results for them.

 

The above ideas are all more professional and likely to work in this case.

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Stephen Quay
By squay
03rd Dec 2013 18:56

Court action worked for us

A new sole trader came to us one Dec and we got the very messy job (as it turned out) done by 31 Jan (about 6 weeks of hard graft). Invoice presented on final meeting. No complaints. Job well done. 

After several reminder emails and request for more time to pay, which we gave, we finally had a letter from his "new " accountant out of the blue asking for all the handover details. Final email threatening court action got no response so we submitted a county court summons online. Client defended with a pack of lies which we were able to defend in court. We had daily notes of the work we had done, calculation of our bill, and all the email correspondence. Crucially we had 2 emails from the client stating his intention to pay but just needing more time. Clearly he was lying when he later told the court our bill was too high "he was shocked" (lies - we had a meeting with him to explain our progress and fees during the job) , "was not as quoted" (no quote given, only guide figures given), proving that he'd changed his story purely to wriggle out of not paying us a penny. The judge saw through his lies and we proved our case but we had to hold our corner and our meticulous records were the clincher.

From invoice to court judgement took 18 months and 4 court hearings. Court agreed he could pay us £100 pm which will take 25 months to pay, The good news is that he has been paying regularly and the end is in sight. However, I would not want to go down that route again so now I try not to submit returns until we have been paid. However I admit to being soft and can't bear the thought of holding back a submission so the clients gets a penalty. It depends on the client, how long we have known them and if we trust them or not.

We lost a different client this year when we asked him for a 50% deposit up front and 50% on completion. In the previous year he had taken 15 weeks to pay our invoice. He said he felt insulted that we had asked. Why is that clients think that we are prepared to work hard, go the extra mile and then wait forever to get paid. If we get paid at all. I was happy to see this one go. 

 

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By AVB
17th Dec 2013 08:56

Update

Thank you for all the comments and good advice, which I followed and it seems to be having the desired effect. The client who is a particularly awkward customer refused to communicate in writing/ e-mail telephoned me to offer me a small part of the fee on the basis he couldn't now afford the fee which he'd agreed to and signed up to in the engagement letter. He then went on to spout total nonsense about being unhappy with certain parts of the service, which he'd never mentioned once in any of our correspondence over the past three years, all of which was totally unfounded, just lame excuses for not paying.

Following the great advice from this forum, I issued a statutory demand. Amazingly he now has the money all of a sudden and wants to settle the outstanding invoices in full. He has confirmed his intention to pay in full by way of several emails. He's now claiming to have a new Santander bank account and is now struggling to get his bank to make the payment to my bank, more excuses to follow I expect. But at least I have email proof of his intention to pay.

Hope this gets resolved before Xmas.

Thanks for your help and will let you know if I eventually get the money, but either way a Statutory Demand does seem to immediately get people's attention.

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By bernard michael
17th Dec 2013 09:02

Well done.Do not be fooled into withdrawing the SD until you have all the money.If you don't get it do present a bankruptcy petition.Purely as a matter of interest did you prepare the SD yourself or use a solicitor. If the latter how much did he charge?

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Replying to advaccounts:
Red Leader
By Red Leader
17th Dec 2013 11:21

glad the SD worked

I recently used Thomas Higgins to issue a Letter Before Action (cost about £2!). I had got fed up chasing. The client paid in full a day or two later. So far, I've had 100% success with Thos Higgins LBAs.

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By AVB
17th Dec 2013 12:20

Hi. I'm convinced this problem has got a few more twists and turns before it gets fully resolved. I'll only be happy once the money is in my account. I downloaded the SD from UK Gov website, completed the forms and sent it special delivery. Seems to have done the trick. If they still don't pay I can only assume their email stating their intention to pay will strengthen my case?

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By The Innkeeper
17th Dec 2013 12:47

One word of warning about SDs

If its a limited co you are chasing and the reg office is at your address you must send it by special delivery to the company to have proof of proper service and send a copy to the directors at home to be belt and braces

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By bernard michael
17th Dec 2013 15:05

Well done. The fact that they've admitted the debt removes their chance of challenging the SD on the grounds there is a triable issue.

Please report back progress

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By AVB
18th Dec 2013 10:49

THANKS

Thanks to everyone who advised on this thread I've received full payment from the client. I've certainly learned a lesson from this.

1. I should set up a DD for all clients. 2. Invoice regularly and chase up debts on a timely basis 3.If clients treat you unfairly, then play hard ball. Invoice followed by a statutory demand.

Again thank you and a very happy Christmas and prosperous New Year to all on AccountingWeb.

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By bernard michael
18th Dec 2013 10:58

I'm glad it worked out OK. However do not automatically issue an SD. If the client can demonstrate that the debt is capable of being disputed the SD can be overturned and maybe costs awarded against you by a stroppy judge.In this case you outlined in your original post the SD WAS appropriate hence the advice given

 

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