Late payers and bad payers

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Compulsory mediation

The Ministry of Justice (MoJ) has confirmed that mediation will become compulsory for civil claims of up to £10,000.

The requirement will be rolled out over time, beginning with specified money claims (currently 80% of small claims). So, to start with, only claims of up to £10,000 will be affected. Subsequently, personal injury and unspecified money claims will be added to the scheme.

The procedure is expected to be as follows:

  • County Court proceedings will commence in the usual way.
  • If a defence is filed and the case is allocated to the small claims track, the court will inform the parties that the next step is mediation.
  • The case will progress to the Small Claims Mediation Service (SCMS). Mediation appointments will be offered within 28 days of the SCMS receiving the case.
  • Mediation will be free of charge and carried out remotely. The parties will speak to the mediator only – not each other.
  • If a settlement is reached, a legally binding formal agreement will be registered with the court. If not, the case will go on to be heard by a judge in the normal way. The MoJ has emphasised that settlement will be voluntary – all parties who need a judge hearing to resolve their dispute will be able to have one.

Parties which fail to take part in the mediation process (e.g by not attending their scheduled appointment) may face sanctions. The judge might:

  • automatically rule in the other party’s favour (called strike-out); or
  • order the non-compliant party to pay for all or part of the other party’s costs (even if the judgment is in the non-compliant party’s favour overall).

These sanctions will be discretionary. In some situations, the judge will be able to take mitigating circumstances into account. The government hasn’t yet stated when the changes will be introduced. Further details and timings will be announced over the coming months.

We’ll be watching developments closely, so check your account for the latest updates.

If you're lucky, your customers will pay all of your invoices on time, every time. But sometimes, even despite your best efforts, one or more of them won't pay promptly. So, here's some information to help you out if one of your business customers suddenly becomes a late or, worse, a bad payer.

We've put this guide together on the basis that most businesses want to preserve good sales relationships, even if something goes wrong with a customer on one occasion. However, covered here too, you'll also find the more rigorous tactics that are generally most appropriate to enduring and substantial bad payers (when other options really aren't suitable or you've already tried them).

First things first - what's the difference between a late payer and a bad payer?

Late payer

A customer who hasn't paid their invoice on time but hasn't given you strong reason to believe they won't pay at all.

Bad payer

A customer who doesn't pay their invoice at all, resulting in their debt being written off at a cost to your company.

So, how do you spot a late or bad payer?

While it's impossible to know for sure if a customer will be a good payer or not, here are some key things you can do before doing business with them.

Far003 Slot7 Spot A Bad Payer

Even if you follow all of the advice above, you may still find that a customer is late with their payment. So what can you do right away?

There are two things you need to do:

1. Don't let it escalate: Enforce your rights to put a stop to any products or services being supplied to them until the invoice is paid. This will not only prevent more debt racking up, but it'll also encourage them to pay up.

2. Communicate clearly and promptly: Remind your customer of the late-payment terms in your agreement with them, including any interest or fees that they'll incur. Use post, email, and telephone if necessary, to send reminders of their invoice and to explain how they can settle their balance.

You may also want to raise the prospect of rating them, if relevant. Many businesses now offer very discoverable ratings on their customers, which may impact credit and other terms offered not just from them, but from others who rely on these ratings to manage their own business risks.

Someone hasn't paid up, what do you recommend?

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