In recent weeks we’ve been looking at some of the terms that are used in the debt recovery industry and explaining what they are and how they work. Bankruptcy in Scotland is of course governed by Scots Law.
Insolvency can often be a fast method of recovering cash – particularly if your debtor wants to continue in business.
Insolvency can be instructed at different stages, either when using the Statutory Demand Procedure, or after judgment in a court action, where no payment has been made following the first stage of enforcement.

Bankruptcy
We can bankrupt individuals, sole traders or partnerships.

What do we do?
After we receive your instructions we prepare a bankruptcy petition and send it to the court for processing.  Once the court has done this we then serve the petition on the debtor.  This entire procedure should not take more than 2 weeks.
If the debtor is serious about carrying on in business - or for other reasons does not want to be declared bankrupt – we will be contacted with settlement proposals.  We’ll contact you immediately when this happens. 
If we do not hear from the debtor we’ll just proceed with a bankruptcy order.  This will not involve you in further expense.
Liquidation in Scotland

The emphasis should always be to spend money only where recovery prospects are good.

We can liquidate Limited companies.

What do we do?

We present a Petition for the appointment of a Provisional Liquidator.  This will take one-two weeks following receiving your instructions. 

The Provisional Liquidator will attend the company’s premises to assess whether the debt can be discharged by third party funds – usually cash injected personally by a company director or shareholder.

If the Provisional Liquidator is unable to get settlement he will assess whether it’s financially worthwhile taking the liquidation further – we’ll not proceed to the next stage without discussing the options with you.

A brief summary of the Procedure:
i.If the debtor company discharges the debt in full via funds from a third party then we will have the petition dismissed.
ii.If the debtor company is unable to discharge the debt but has sufficient assets to settle the liquidator's fees then we will proceed with the liquidation.
iii.If the debtor company is unable to discharge the debt and has insufficient assets to satisfy the liquidator's fees then we will have the petition dismissed.

Unlike previous legislation which differentiated between different types and sizes of organisation all businesses, notwithstanding their size, including public sector bodies, can use the law. So if you are a Scottish business trading with another business, government or local authority you will be able to use the Act and benefit from being able to recover interest as well as reasonable recovery costs.
Are you obliged to use the Act?
The answer is "no" although it is hoped the more often the Act is used the greater businesses will be aware they will have to pay their bills on time leading to a new culture of payment being required within credit periods.

Can You Use An Alternative to the Legislation?
There is no reason why you cannot contractually agree the amount of interest you wish to charge your customers in which case the late payment legislation will not apply.
So, for example, your terms and conditions may stipulate you are entitled to an agreed defined rate in the event of your account being overdue by 21 days following delivery of goods or performance of services.

Note: (1) If you do make your own provisions for contractual interest then the late payment legislation will not apply.

(2) If you do not make any arrangements for interest then the legislation will apply and you can use it.

The Yuill + Kyle website at www.debtscotland.com gives users the option to download free demand letters. These letters provide the option to:
1.Charge no interest;
2.Charge contractual interest or
3.Charge Interest under the legislation.
4.Add collection cost, where appropriate.
These can be found in the ‘DIY Toolbox’ part of the site at http://www.debtscotland.com/recover.cfm

A recent client query has prompted us provide a few blogs dealing solely with late payment legislation. 

What is the Legislation?
The Late Payment of Commercial Debts (Interest) Act 1998 has been amended by European Directive 2000/35/EC. This amended legislation is in force as from 7th August 2002.
Basically the legislation, gives you as supplier, the statutory entitlement to charge interest at 8% over the Bank base lending rate as well as reasonable collection charges from a purchaser who is late in settling accounts.

The legislation was designed to reverse the bad practise of deliberate late payment, often ascribed to large companies and organisations using their power over small business although all businesses and the public sector will be able to use it.

How Will the Legislation Help You Recover Cash?
Basically the legislation provides suppliers with:
• The right to claim interest for late payment
• The right to claim reasonable recovery costs (unless you as the supplier have acted unreasonably).
The amount of compensation depends upon the amount you are due:

RECOVERABLE COSTS

Amount Due to You           Amount to Paid By Creditor
Up to £999.99                             £40
£1,000 to £9,999.99                    £70
£10,000 +                                  £100

• A right to challenge contractual terms which fail to provide a substantial remedy against late payment.
• A right for "representative bodies" to challenge grossly unfair contractual terms.

Your Terms and Conditions
Whilst the right to claim is automatic to encourage prompt payment from your purchases, to ensure you benefit from the legislation, you may wish to remind your purchasers of your entitlement to make the claim by adding the following to your terms and conditions:
“We hereby notify you of our rights in terms of the Late Payment of Commercial Debts (Interest)Act 1998 as amended to claim interest and compensation for debt recovery costs if we are not paid according to the credit terms agreed between us."

At Yuill + Kyle we automatically ask for ‘interest and collection costs’ when chasing business debts, helping to ensure we get the best possible outcome for clients.

Every day I speak to many businesses about recovering debt, UK debt collection is, unfortunately, a growing business.
Getting debtors to pay their bills can be difficult and time-consuming.
Unfortunately all businesses have to deal with bad debt from time to time.
However, before you come to a company like ours for help, there are a variety of ways in which you can shield your business from bad debt.
Over the next few weeks I’ll be shedding light on some of these topics.
I’ll be blogging about everything from Credit Ratings and Payment Terms to talking to your Bank and HM Revenue & Customs.
Also, I’ll take you through a 12-Step process which can help you manage the relationship you have with your customers and help you avoid the build up of bad debts. I intend to post a new blog every Tuesday and over the next few weeks we'll shine some light on the often simple steps a company can take to try and prevent incurring bad debt in the first place. All comments are welcome and I'll do my best to respond to any questions you've got.

Stephen Cowan