Advocate has collected £10K in 2 days from a commercial kitchen installer who would not commit to payment. Our client is a Gloucestershire-based subcontractor in the construction industry. The construction industry has a wide range of trades, with our client specialising in acoustic partitions and suspended ceilings. Whether it is taking the echo out of an open-plan office or concealing ducting in a school kitchen, our client can do it all. Having just two employees, our client is a small company in their third year of trading, targeting sustainable growth in the years ahead. The contracts to date have been for education centres and business parks. This particular contract was to design and install a suspended ceiling for a commercial open-plan kitchen extending into the dining space. It had to be both functional and architectural. With easy access to South Wales from Gloucestershire and a design matching the high-end luxury dining concept, our client was a natural fit for the project.
VAT Reverse Charge Technical Guidelines
50% of the contract was invoiced upfront to cover materials. The balance of £10K was due on completion. Outside the construction industry, VAT is applied on top of the goods/services, invoiced and eventually passed on to HMRC by way of VAT returns from the creditor. A £10K invoice will typically come in at £12K, depending on the rate of applicable VAT. The construction industry does things differently. Our client’s invoice is subject to the VAT Reverse Charge Technical Guidelines of March 2021, which states that the debtor pays VAT on invoiced items directly to HMRC. The creditor no longer collects VAT. With the burden of chasing VAT and splitting it from revenue lifted, our client can spend more time focusing on running their business as opposed to playing cat and mouse with tax and HMRC.
Cooking Up a Delay
The debtor is the main contractor working on behalf of the end customer. In this case, the customer has several wealthy backers making an investment to construct a luxury hotel in South Wales. When you have ambitions of gaining Michelin stars and providing hospitality on par with London’s finest, the kitchen better be good! The debtor has been operating for over 40 years and has a reputation for installing quality commercial kitchens for FTSE 250 firms and urban culinary epicentres. The level of finish and functionality required for this luxury hotel is one they are very familiar with. As a company founded and flourishing in South Wales, the debtor met the ‘keeping it local’ brief laid down by the hotel backers. Having delivered the kitchen dining ceiling to specification and on budget, the final invoice was raised on 30-day terms. Our client had been given the impression the project was cash-rich, and payments would be made well within credit terms. At least, that is how the first invoice was paid before starting on-site. When the invoice became overdue and no feedback was immediately forthcoming, our client started to get concerned. Several weeks of chasing later, our client only had a phone call to show for their efforts, albeit one that advised a payment date was still unknown.
Payment on a Silver Platter
Upon instruction, Advocate issued a Notice of Court Proceedings. The debtor’s credit rating suggested they could comfortably afford to carry £10K without appropriate funds from the hotel’s backers. Payment for one was not conditional for the other. The Notice was issued to the debtor’s registered address, and a soft copy was sent by email and followed up by telephone. This combination of communication is proven to be highly effective. As in this case and most, explaining the repercussions of court proceedings and giving a way out through immediate payment obtains the best client outcome. On day 2 of our action, full payment was received. The statutory charges amounting to 10% of the principal sum were also paid. Rates within our industry range from 5% to 25%, but Advocate intentionally keeps fees at the lower end to avoid them being a barrier to payment. Despite needing to involve a third party, the relationship between the client and the debtor remains so secure that another project is in the pipeline. This was another successful commercial debt collection by Advocate.