You did the job for the new customer who was so keen to have it finished on time, and sent your invoice promptly. Now you're looking forward to the next order, and to banking the payment. The weeks tick by and no payment arrives. You call to request payment - nothing. Then you send a stiff letter, and the response is still nothing.
"The UK has one of the worst paying business cultures in the EU," says Gerard Barron, head of Debtline at lawyers Hammond Suddards Edge. "This has a potentially crippling effect on business. And we know the problem is getting worse - as our debt recovery service is growing each year, without advertising. We feel that recession is going to make things a lot worse for business: small businesses in the manufacturing sector are finding it very hard now."
A way of life
Some would argue that bad debts are a way of life for small business, and simply write them off. Others fight back: they use the small claims service of the county courts, which is designed to provide an easy, speedy and low cost means of resolving disputes. As a cheap, quick and trouble-free method of recovering the money owed to you.
Around 2 million small claims are made each year, and only a tiny proportion of those claims ever come to court - in many cases the threat of small claims does the trick, and payment follows quickly. "Cases only come to a hearing when both parties are determined not to resolve their differences," argues Lord Chancellor's Department spokesman Peter Farr.
"We know too that 87% are money-related - 'I've done this job and haven't been paid'. The small claims system works very well for most people, and is ideal for small businesses."
Others are more cautious. Citizens Advice Bureaux around Britain receive several complaints about small claims each year, and social policy officer Alison Green cautions, "Small claims has its good and bad points, and we do have clients who experience difficulties. The cost affects a lot of people: although the fees sound relatively low, £27 to recover £200 is a lot if you're on a low income."
Business Debtline organiser Cheryl Daniels is cautious too: "Small claims is useful if you use it properly. There is always a risk - people should take out a small claim recognising that they won't necessarily get the money. And some people want to do it out of spite, to mess up someone else's credit rating."
But for most small businesses, small claims is a useful last resort - a relatively quick, cheap and easy way to recover the money owed to you from a client who ignores or evades all other attempts to make him cough up. You can claim up to £5,000 (£750 in Scotland), and your costs are added to the unpaid bill and paid by your creditor if you win.
So how do you go about it? With great caution, urge experts. Remember that you will get nothing if your client does not have the money, or assets of value. If your client is a limited company, there may not be assets in the company's own name and so you cannot enforce payment.
Even worse, you could find yourself in a great queue of creditors, none of whom are likely to be paid. If your client already has other county court judgements against him, which he has not paid, chances are he won't pay you either. You can check this by searching the Register of County Court Judgements, for a small fee.
"Good credit control is essential for small businesses, to minimise the risk," counsels Barron. "A significant number of businesses don't understand the importance of credit control." Businesses should check a customer's credit record, he suggests: "One shop fitter I know was owed £108,000 by a single customer, and when we did a credit search the customer only had a credit limit of £5,000. The customer finally went bankrupt, and so did my client."
Remind customers of unpaid debts with an invoice, and a monthly statement of how much they owe you. Act quickly: the longer debts go unpaid, the less likely they are ever to be paid. Write to your customer requesting payment by a certain date, and saying you will undertake county court proceedings if payment is not made. Keep copies of all correspondence - you will need to show the courts that you tried all other means, and used small claims only as a last resort.