In this kind of situation the small firm may well feel that they are in a difficult situation, especially if this is their first contract with the large firm and they hope for more work from them. In this case the business relationship may well be at an early stage, where trust is an important feature, even if the small firm had done the required projects to a top and acceptable standard, this is only the first projects they have performed for the large firm. It might be very risky to pre-empt the situation and go directly into Debt collection, either by getting in touch with a solicitor who specialises in Debt collection, by going to a Debt collection firm direct or by choosing a do it yourself approach by using Debt collection software. A far better initial move might be to get in touch with someone in the finance department of the larger firm and see if there is any good reason why settlement has been delayed. The next stage should be to read through the contract that was set up for the projects and see if it includes a paragraph to cover late settlements, if so then this can be used as it will have been agreed when the contract was signed and is unlikely to cause bad feeling. If there is no late settlement paragraph then the “Late Payment of Commercial Debts (Interest) Act 2002” comes into its own.
In this law the final date for settlement of accounts for projects done is 30 days after the invoice was presented. If settlement is not forthcoming then the small firm has the legal right to make a one-off set charge as some compensation for the projects done in the Debt collection method; however this is a fixed charge based on the value of the debt rather than an actual figure for the cost of initial Debt collection work. The small firm can also add interest on a daily basis on the remaining debt at a rate of 8% over the Bank of England base rate. For debts that became overdue between, January 1st and June 30th the base rate at the preceding December 31st is used and for debts after July 1st, the base rate at June 31st is used.
If the small firm has made little progress by speaking to the accounts department then they may be recommended to escalate the problem and use one of the [methods identified earlier. Their decision as to which is best could be based on price, since the solicitor and Debt collection firm can base their charges on the debt value and not on the cost of actually undertaking the work and this may be a significant amount to a small firm. The Debt collection software option should be significantly cheaper as packages can be had for under £100 and these should contain Debt collection letters, either as examples or as templates which the user can use as a basis for their actual Debt collection letters, which form the centre of the Debt collection method. The Debt collection software should also be capable of recording the date and time of key activities, such as first registering the debt details, sending out Debt collection letters, logging incoming emails, postal mail or phone calls. All of this is important should the large firm still fails to settle the invoice and the small firm if faced with taking them to court, the Debt collection software records will show the path taken on the Debt collection method; what they have done and what was received back from the large firm, to assist the case of the small firm.
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