What cost can you recover if you sue a client for not paying an invoice?
Many small medium sized businesses often face the situation where a client fails to pay an invoice. This can cause the business financial problems and cause the business owner a lot stress.
So, what can you do in such a situation?
The answer is to act promptly and be proactive in managing later payers. The limitation period for contractual matters is 6 years which means any unpaid invoice within the past 6 years can potentially be recovered. Businesses should review all unpaid invoices as they could recover a substantial amount of money not paid over the past 6 years.
The first step is always to send a polite but firm letter or email to the debtor reminding them that the invoice is due for payment. Often this is very effective and often results in a payment and the continuation of the commercial relationship and if the invoice is still not settled then a letter before action needs to be sent to the debtor explaining ,amongst other things, that if invoice is not settled by the indicated deadline then the organisation reserve right to pursue the invoice via the civil courts to claim for the amount due, interest on claim and court costs.
The amount of interest you can ask for depends on if the client is an individual or a business.
For individuals the statutory interest awarded is 8.5% per annum.
Debtor
When the debtor is a business, it is possible to apply the Late Payment of Commercial Debts Regulations 2013, which allows late payment fees to added to each invoice outstanding.
The Regulations allow the following amounts to be added to each unpaid invoice. The fee applied is in relation to the unpaid invoice.
Invoice value less than £1000 £40.00 per Invoice
Invoice Value less than £10,000 £70.00 per invoice
Invoice Value £10,000 or more £100.00 per invoice
If the above actions fail it will be necessary to start formal legal proceedings via the Court system.
Small Claims Court
If the amount in dispute is under £10,000, the claim can be started in the Small Claims Court in England and Wales. In this track, only court fees and limited costs can be recoverable. The court can award interest as outline above. The Court can in exceptional circumstances order an unreasonable Defendant to pay additional costs. This is the exception rather than the rule. Clients can use the on-line Small Claim Court procedure and represent themselves should they wish.
Fast Track
If the amount of the invoice is greater than £10,000 but less than £25000 the claim will be allocated to the Fast Track. This will be the case if the matter will not involve complex or technical issues. If your claim is suitable for the Fast Track, it is advisable that you use a litigation solicitor to recover the debt. If your claim is found in your favour, the defendant can be ordered to pay your costs and your solicitors fees. Such cost orders are assessed at the Courts discretion.
The Multi Track is for claims valued at more than £25,000 or have complex matters to assess. If successful, the Defendant can be ordered to pay a proportion of your solicitor's fees and disbursements. The Court will make a cost award after the main judgement. If your claim is suitable for the Multi Track, it is advisable that you use a litigation solicitor to recover the debt.
If you have any questions in regards to debt collection or need further information, please call us on 0333 240 7208 or contact us here.
