Devonshires Solicitors LLP, a City law firm, has launched a debt-recovery service called The Debt Collection Centre in response to growing demand for debt recovery as the economy recovers and businesses get tougher with late payers. The service, one of the first of its kind by a City law firm, gives companies of all sizes a professional and affordable alternative to debt-collection agencies.
Services range from telephone and letter collection of debts and High Court enforcement to company litigation and insolvency − tasks debt collection agencies may struggle to deal with if they don’t have experienced in-house lawyers. Business customers will generally only pay for the service if Devonshires Solicitors LLP recovers the debt. The typical commission for a UK client is about 10%.
Matthew Hennessy-Gibbs, partner at Devonshires Solicitors LLP, said that during a recession, perhaps ironically, businesses give late payers more leeway as they don’t want to push the company into insolvency by demanding immediate payment of the debt. But as the UK economy grows “people tend to be less tolerant about debts and be more selective about who they do business with.”
He said that more companies were outsourcing their debt recovery. “Our corporate clients instruct us to do debt collection because they know we won’t damage their reputation or our reputation through the methods we use to collect
Receiving a letter from a well-known law firm rather than a small debt collection agency can encourage the debtor to pay the debt quickly, Hennessy-Gibbs said. One corporate customer of Devonshires. Solicitors LLP had over 75% of its business debts paid after debtors got a letter from Devonshires Solicitors LLP, warning them of possible legal action unless they paid money owed.
Late payment and unrecovered debt is particularly bad in the construction, food and recruitment industries.
Nearly a quarter of small and medium-sized businesses in the construction industry say late payments have put them at risk of going bust in the past year, according to research published earlier in November by payment-software company Tungsten.
In the grocery industry, supermarkets took 33 days beyond terms to pay suppliers last year, compared to 27 days for the food retail sector as a whole, according to research by Experian, the credit reference agency. UK recruitment agencies are owed £6 billion in outstanding invoices, according to Sonovate, a finance provider.
Unrecovered debt is also a big problem for small and medium-sized businesses which have smaller financial reserves than large companies. British small and medium sized businesses are owed about £67 billion in unpaid invoices, up 8% from £62.5bn in the last year alone, and 36% from £49.5bn in 2011, according to figures published in September by the Asset Based Finance Association.
Hennessy-Gibbs said that Devonshires Solicitors LLP can work with finance directors at SMEs to help them improve their procedures for monitoring money owed and dealing with problem payers at an earlier stage. Although the number of company insolvencies decreased between July and September, even a modest rise in interest rates (expected next year), would increase the cost of debt and may push struggling companies over the edge.
Personal debt in the UK, which was 1.45 trillion in September, an extra £661.50 for each adult compared to a year earlier according to The Money Charity, is also high, meaning that individuals may also struggle when interest rates rise or when economic growth slows. A recent change in bankruptcy law means that creditors may find it harder to enforce debts against individuals. In October the threshold for petitioning for bankruptcy if an individual owes you money was increased from £750 to £5000.