When is applying for a CCJ the answer for SMEs

When is applying for a CCJ the answer for SMEs

There’s no denying that we’re living in an age swamped by uncertainty and change. In the last two months alone we have seen PM Theresa May shock the British public by calling for a ‘snap’ general election and a divided France vote for Emmanuel Macron as its new President, a man without the support of any mainstream party.

This sense of uncertainty has not spared the UK’s business community either. Debt chasing has become somewhat of a ‘norm’ in business practice, making the future of chasing companies slightly hazy. While SMEs can prepare to receive payments late, they don’t prepare to not receive one at all. This debt chasing culture is highlighted by the number of businesses applying for CCJs.

What is a CCJ?

A CCJ is a judgement that a County Court issues when a company has failed to pay money that they owe. When a business owes money to another business, the debtor can apply to the County Court for a judgement (CCJ) against the creditor to claim the money. However, it’s the Court that will decide whether there is a debt to pay and if there is, it’s only then that they will issue a CCJ. A CCJ might not always be the most-effective, or right option and the debt chasing process should never start with the threat of a CCJ.

According to Creditsafe’s 2016 A Year in Review, the CCJ (County Court Judgment) value throughout the whole UK hit over £300 million for the first time in three years, with a total of 63,053 CCJs issued. This rise reveals that more invoices are going unpaid, and that businesses are struggling to chase their debts.

As more and more businesses turn to the Courts for help, it’s important for business leaders and decision makers to ask what is the right option? How can a business, particularly an SME, tell if issuing a CCJ is the right way to proceed, and when the right time to do so might be? After all, involving the Courts can be costly, and should only ever be a last resort. There are other steps to consider first.

Communication is key

As we’ve said, late payments aren’t uncommon. So, there’s no point picking a fight or demanding legal action the second a payment is late, especially when a customer might be truly struggling. It’s important that first and foremost, you communicate clearly. Start the debt chasing process with a simple and friendly follow up email to remind them the invoice is due. Allowing a little leeway will probably increase the likelihood of you receiving the payment.

It is also useful to credit check a company, as this allows companies to view customers average DBT (Days Beyond Term), that it takes them to pay their bills. You might find it’s typical of the company you are in business with to pay late, and if this is an issue for your finances going forward, it might be wise to reconsider doing business with them.

Debt recovery firms – an alternative route?

If communication fails, after sending both emails and letters, the next step to consider might be legal action. But remember, a CCJ might not always be the right next step for all SMEs to take. It’s important that you figure out how much involving the courts will cost you and compare this figure to the cost of the debt itself – remember it’s not guaranteed the Court will issue a CCJ and solicitor fees can have a hefty price tag.

Alternatively, a debt recovery firm can often be the most cost-effective process to receive your debt. Debt recovery firms work on a no win, no fee basis. Whilst they have no legal powers, they will work persistently to chase the debt, and can be quicker than going through the Courts as there’s no time spent waiting for a hearing to take place. When it comes to debt chasing, for an SME especially, time is of the essence as mounting bills can be seriously damaging.

Legal action – CCJs

Debt recovery firms don’t succeed in all cases and if the firm fail to recover your debt, then it’s time to take legal action. Unfortunately, in the UK, this is happening all too often. In the first quarter of 2017 alone, a total of 14,795 CCJs were issued across 12 sectors, according to Creditsafe’s Quarterly Watchdog reports.

The CCJ process starts with an online application. The form you’re required to fill in will ask for information about the creditor and debtor, as well as details about the particular circumstances of the claim. After your application, a letter will be sent to the debtor from Court explaining how much they owe. They’ll have a CCJ Claim Form to fill out, which will allow them to give ‘their side’ to the story.

Following this, the debtor will either accept the claim and pay in full, ask to pay in instalments or alternatively they can dispute the claim, or amount owed. If disputed, a CCJ is issued following a successful hearing; only then will the court order demand that a debt is paid and set out how.

Although issuing a CCJ might seem like the most reliable option, or perhaps a ‘guaranteed’ way to receive the money owed to a business, SMEs should exhaust all other options before turning the courts. Communicate and pass the debt to a debt recovery firm first – you might find a little leeway, or push from an external firm is all the debtor needs to pay up. Don’t jump the gun.

Meanwhile, it’s important that SMEs do all they can to prevent the issuing CCJs in the first place. Make sure you credit check a company before entering into business; that way you’ll be able to see if they are a consistently late payer, and you might just be able to stop your fingers getting burnt.

Rachel Mainwaring is operations director at Creditsafe

Further reading on applying for a CCJ

Nominations are now open for the British Small Business Awards 2017, the leading event celebrating the brightest stars in the SME sector. Click here to enter, and make sure you get involved today using the hashtag #BSBAwards. Good luck!

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