Get the details right: Taking a client to court

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Jennifer Adams considers whether you should take a client to court for recovery of outstanding fees.

However tight you believe your credit control system to be, whatever your invoice practice (annually/monthly/quarterly/DD/GoCardless etc), there is always the possibility of client default.

Many accountants believe that by agreeing invoices in advance, ensuring that the letter of engagement confirms the method and date of payment (with monthly payments being the norm) that default is kept to a minimum.

However, there will always be one client that proves to be a debtor too far.

Taking a client to court is a straightforward process, but be aware that the preparation, mediation and attendance at court could mean that it costs you more in time than the debt itself.

The procedure must not be seen in isolation but as part of your firm’s overall debt recovery procedure.

Debt recovery procedure

If there is a written procedure in place then you are more likely to adhere to the process. In addition, if you do end up in court then you will be expected to prove that a due process has been undertaken, including giving the client the chance to query any item on the invoice and every opportunity to agree a payment schedule.

Consider:

  • Include a paragraph in your Letter of Engagement (LoE) confirming your firm’s policy that should payment not be made within a set number of days that 'further action' may be undertaken. In his firm’s LoE, member David Gordon also includes a sentence stating that any querying of fees must be within 21 days of receipt of invoice.
  • Although you might not be mindful to, try ringing the client to see whether there is any reason for non payment (illness etc).
  • Send a statement after a set number of days has passed. If there is still no response, send a reminder, then a recorded delivery letter enclosing the statement. The actual invoice and reminders can be by email, but a recorded delivery letter will prove to the judge that the statement reached the client and, importantly, that the service address is correct. Simplydocs has useful template letters that can be sent with the final statement prior to taking further action.

Example of text to use in final letter:

"We have not yet levied any late payment or interest charges to the amount overdue which we are entitled to do under “The Late Payment of Commercial Debts (Regulations) 2013” as payment is overdue by 60 days.

However, should full payment not be received within the next seven days we may add these charges to your account and consider taking further action to collect the debt".

Next stage

If still no response/payment, the policy will need to detail the next course of action which may include one or a combination of the following:

  1. Solicitor’s letter: some AccountingWEB members advocate that such a letter indicates to the client that you mean business. A letter obviously costs - it might work but if not and you still end up in court then it will have been a wasted cost that is not claimable even if you eventually win.
  2. Debt collection agency
  3. Apply for CCJ using form N1 (available online - court fees are cheaper).

Debt collection agency

Using a debt collection agency means that the process is taken out of your hands into the hands of experts who will be businesslike and not be swayed by any story of non payment. They charge a set initial fee which covers the issue of at least two letters/phone calls and, if still no response, a visit.

At this stage they have no further powers (eg to take possession of goods) unless they are registered bailiffs and a court order has been issued.

County Court Judgement (CCJ) application

If they are not successful in collecting the debt then the next action is to apply for a CCJ, the cost of which depends upon the amount of the unpaid debt. The fees start at £25 for a judgement below £300 (for an online application – payment is higher should the application be made on paper). The scale of costs can be seen at this link.

Application is online via the Government Gateway (different from the gateway for HMRC registration). The site is a bit basic but it is easy enough to complete the form. There is a box in which you have to give reasons for the debt within a certain word count. If you agree to mediation then you will be sent a date in the post for a telephone mediation.

If the defendant does not respond and the claim was issued online, ‘judgment by default’ can be requested.

Practical points

  • It is worth sending a recorded letter to the client prior to applying for a CCJ, pointing out that should a CCJ be awarded then their mortgage provider will be aware.
  • The form asks you to indicate at which court you would prefer the case to be heard. Do not bother suggesting a court local to you or even one halfway, as it will always be at the defendant’s local court.
  • You can apply to either a county court or the High Court for hearing if the debt is between £600 and £5,000.

How much to claim?

As indicated above, 'The Late Payment of Commercial Debts (Regulations) 2013' allows the claim to include interest, statutory recovery fees and costs of the debt collection agency, if used. If you win then these amounts are automatically included in the final amount plus any expenses incurred in attending court (eg petrol and accommodation costs).

The application costs increase substantially at £3,000 or above – be aware that this amount comprises total costs and not just the amount of debt.

Should you mediate?

There is a view that if you do not agree to mediation then the judge might not look favourably on the case, as you would not have done all you could to settle the case amicably.

On the other hand you have done the work, you have done nothing wrong, the invoice was fair, you have waited to be paid, the client is aware that payment would be due and when, they have been given enough opportunity to pay so why mediate? If this is a path you choose to go down, remember you are not mediating on a reduction but on how the debt will be paid.

Court papers

If the client disputes the claim and mediation does not work resulting in a court hearing, the details of the case will need to be supplied to the court prior to the hearing. Remember that the judge will not have time to read a lengthy tome.

Present the text using bullet points. Start by including the outstanding invoice, detailing dates etc of any phone calls, emails or letters. Mention mediation if this has been undertaken. At the hearing you will only be asked questions should the client appear to defend themselves. If they do not attend then judgment is automatically awarded to the applicant.

And if they still don’t pay?

Place the debt in the hands of the debt enforcers. They will do the hard work for a percentage fee and their success rate is over 98%. If the court awarded in your favour then every time the enforcers attend the cost payable by the defendant increases, so the cost to you is nothing.

Final point

You might be surprised and find that just the threat of court action produces payment, but if not then be mindful of the time and effort it will take to take the matter further.

The first time it will take time learning the process etc, but after you have done it once the feeling of satisfaction when finally obtaining payment makes it all worthwhile.

About Jennifer Adams

Jennifer Adams is Consulting Editor of AccountingWEB and is a professional business author specialising in corporate governance and taxation. She runs her own accounting and consultancy business with offices based in Surrey and Dorset.

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27th Nov 2017 13:40

Sounds like great advice but care to quantify how much all this advice will cost a small accountancy firm each year in increased admin costs? Even if you get it all right some of the "not-rights" will ignore you and bust the company before starting again. I just hope that karma will repay these disgusting idiots who think that stealing monies is okay.

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By mabzden
27th Nov 2017 16:12

I would disagree with one point above. If the case gets to court the judge WILL want to see a lengthy tome plus all the supporting evidence. If you don't provide it the judge will think you're too busy to treat the court with the respect it deserves, and may well find an excuse to find in the client's favour.

I was once helped with a smalls claims case by a solicitor friend of mine who does a lot of litigation work. We prepared a witness statement that was around 11 pages long, and made a supporting bundle of documents that was a further 50 or so pages. I made two or three copies of all of these papers, and you need to send copies to the court and to the defendant in advance by certain deadlines. We did all this and (thankfully) won the case.

If you try to take shortcuts, and supply a short statement with bullet points, you'll probably lose the case and waste your time.

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By mrme89
27th Nov 2017 16:21

Debt recovery is quite subjective.

A default of £300 to a £80k GRF firm serving clients all over the UK should be treated to a £80k GRF practice in a small community.

Letting the £300 debt go to the local firm may mean they get a reputation for being a soft touch, whereas that the risk of that happening to the firm serving clients nationally is remote. £300 to the national serving company is probably best written off after exhausting the letter before action etc because to take it further would be a drain on time with material recovery.

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to mrme89
28th Nov 2017 13:54

In my experience in a small community everyone already knows the 'slow payers'. They tend to treat their accountant in the same way as their solicitor/butcher/garage etc! They rarely boast about getting away with it though, so it is safe to simply stop chasing and not do any more work until they do pay.

If it is a local business you can always settle the invoice by bartering.

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to mrme89
29th Nov 2017 19:21

i have no idea what you are saying, have another go

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28th Nov 2017 15:11

I unfortunately have 2 bad debts currently. went against my gut instinct and fell for the sob story helped them out and did not get paid.

Its often those you do the most for that let you down in this way.

I used to deal with these myself but now put them all through Thomas Higgins now as it is an excellant service that does not break the bank.

They are also lethal at getting many extras added on to the amount to soften the amount of admin time wasted.

I have obtained both judgments and currently got TH kicking doors in for collection.

Take no [***] from bad payers.

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29th Nov 2017 10:08

Ignore the comment about never getting the case referred to your local court. I have twice achieved this. All you need to do is to demonstrate to the court that you have tried your utmost to get the matter resolved without going to court. Then you need to be able to show that the amount you are trying to recover has never been disputed. If you can do both of these things, a court will transfer the case to your locality as the defendant is clearly abusing the system. Judges do not like abuse of process, and that is the argument you need to run.

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By djn24
29th Nov 2017 10:14

From our experience court action is a waste of time.
If we have taken a client to court it will be the last attempt at recovery after all else has failed. Taking them to court costs us money.
We have been successful in court and had a CCJ agreed. Trying to enforce that costs us even more money and if the client really doesn't want to pay they won't.
The reality is that high court bailiffs have very little power as they can't force entry into a property and if the vehicles are on hp they can't touch those either. Even if they do gain entry they will list the goods and agree to come back at a later date. On that later date they will never gain entry again. Nothing like the TV Shows!

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By mabzden
to djn24
29th Nov 2017 10:44

I agree 100%. Although I won the case described in my previous post, and the client paid up, it took up a huge amount of my time.

You should assume taking a client to court is going to take at least a week of hard work. Even then the judge may be grumpy about the court being used as a debt collection agency and find some excuse to find against you or scale back your claim.

So I haven't been back to Court since. I wouldn't do so again unless it's over a significant amount of money (at least £1,500) and I'm confident that the client has the funds to pay.

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29th Nov 2017 10:30

I agree with djn24. A client stung us for £1,800 we went through the small claims court cost £70.00- nothing!
Applied to the Bailiffs which cost another £120.00 and we didn't even get a reply from them. We contacted the court and was told we could apply to have him made bankrupt if we paid another £250.00. Complete waste of time. Always thought the courts were suppose to be on the side of the victim... Just a money making joke!!

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29th Nov 2017 11:01

https://www.gov.uk/statutory-demands

I am told that this threat gets results.

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to davidbrewster
29th Nov 2017 11:52

It certainly does, if the client is a company and the debt is for more than £750: it tells the client that if they haven't paid within three weeks there will be a public notice that a petition for bankruptcy has been lodged. This is in my experience the nuclear weapon of debt collection: I have only once known it to fail. However it is not recommended in a case where you think that the client might contest the debt, as the bankruptcy court will not hear that and so it can be easily deflected; you would also be playing a dangerous game advertising any bankruptcy petition in those circumstances.

A couple of other tips:

If the client is a company the rule that the case will be heard at a court near the defendant does not apply, so you should get it heard near you.

Go to the High Court if you can (I am not sure what the lower limit is here), if you think that there might be difficulty collecting the debt. Enforcement is done by sheriffs who have more powers than court bailiffs, and more incentive to get the goods. I once had the Essex sheriffs visit a hotel and load a whole load of its equipment (including the guests' TV sets) into a pantechnicon - unfortunately not there to view the work but it was very satisfying dealing with a recalcitrant client who simply ignored court orders.

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29th Nov 2017 11:06

Some clients will dispute a bill with no cause or even make a false counterclaim, just to avoid payment. It is therefore obviously important to show that you have been able to justify the fee, which will include sending the client a detailed time breakdown from diarised records, together with a copy of the signed letter of engagement with the relevant terms highlighted. This will show your efforts to justify your fee and possibly settle.
This will then form part of the documents presented to the Court, should you proceed, and will be difficult for the Judge to ignore or award against you.
If they do make a false counterclaim, you may need to consider whether it is all worth the effort.
Don't forget that you are entitled to notify your successor (formally or informally) of your experience of the client.

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29th Nov 2017 13:07

I have used the Small Claims Court with good effect: many pay as soon as Court Papers are served although they always argue they shouldn't pay the court fees (they should). Another useful point is that if you lose, costs are very rarely awarded against you in the small claims court unless you have been grossly unreasonable somewhere along the way. It is a low risk strategy.

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By norstar
29th Nov 2017 14:12

I found County Court judgements of limited use. The ones that generally got that far usually became the ones who did a runner or went bankrupt, and don't expect any help from the Government if that happens. I had one guy go bankrupt and keep quiet about it, racked up another £1000 of fees then refused to pay. It shouldn't have been covered by his bankruptcy due to deceit, but they supported him.

Best advice I can give is to build in a "directors personally guarantee the company debt in the event of insolvency" and get monthly payments in first. The client that won't sign up is a big red flag for future payment...

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07th Jan 2018 16:10

Ben... It is very unusual to get a CCJ case for an individual heard at a court that is local to your /the applicants office/address. It is invariably heard at the court local to the defendants address. Of course I tried with one of my cases. I even suggested a court 1/2 way between the 2 addresses = still went to the defendants local court.

Before writing this text I checked everything with DCB Ltd (ie the 'Dont pay we'll take it away' TV prog people) and they confirmed this was correct. I also asked the judge who heard a case I presented to him only 6 months ago who confirmed this. And I had done exactly as suggested - mediation/being nice/sending suggestions for payment agreement but I still had to make a 8 hour round journey to the court local to the defendant (who in the end didnt turn up). And I asked the mediation person at the time. Companies are a different matter.

Mabzden... The judge invariably has over 30+ cases to hear in one day - on a variety of subjects. They havent the time to read through lengthy tomes - one bullet page summary is best so the judge can understand exactly what has gone on but also attach back up invoices/statements/notes of conversations/emails (I got that from a judge who heard a case I took to court and who had 27 cases to hear in that one day).

Remember... we are talking small claims court here - not a full blown court litigation case.

And Vaughn Blake...says "If it is a local business you can always settle the invoice by bartering"... no you cant (she says with experience!).

Re going to the High Court - there are set limits. You can apply to either a county court or the High Court if you’re owed between £600 and £5,000.

The smaller debts are County Court and then if you get judgement but still no payment then you can pay the extra to take it to the High Court.

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