The client, in this debt collection case, had been established for just over two years and operated by two hands-on directors and a small team of trained fitters they supply and fit signage and graphics at locations throughout the South West. After two years of hard work, the company has established an excellent reputation, with over 50% of its work coming from repeat customers. The company was if slowly, growing and becoming more profitable.
The directors thought things had really started to fall in place when they were contacted by a much larger signage installation offering significant sub-contract work in the South West. The Yorkshire-based company was well established with a National presence working for a host of well-known brands, a workforce of 100’s and a multi-million turnover. Little did the directors know of the problems and financial stress that would later beset them.
Unpaid Invoices Equal Cash Flow Problems
Purchase orders were issued on a weekly basis, and the company began to struggle to keep up with demand, leading to the company owners taking on four additional employees and leasing two new vans. Within eight weeks, invoices totalling just under £40,000.00 had been issued. However, not a single invoice had been paid.
Weekly requests for payment were met with promises of payment that failed to materialise. When the client realised that they would be unable to pay all of their staff at the end of the month, they contacted Advocate Commercial Debt Recovery and explained the seriousness of their situation and the urgency of getting paid.
Once we received the Debt Collection instruction, the debtor was immediately known to us as we had taken action against them twice the previous month. In both cases, we were successful in recovering payment. However, on both occasions, the debtor waited until the eve of court proceedings being issued before making payment. On this occasion, a much swifter resolution was required.
Fast Track Insolvency Proceedings
Pre-action protocol procedures dictate that debtors must be given a minimum of 14 days to respond before County Court proceedings can be issued. There is no such requirement where the intention is to issue insolvency proceedings. In this case, the debt was not disputed, and the debtor was unable to pay its debts when they fell due. The threat of insolvency proceedings and a winding-up petition was reasonable and appropriate.
We issued the debtor with a Notice of Insolvency Proceedings demanding full payment within just 72 hours. Faced with the imminent issue of a winding-up petition, the response from the debtor was immediate. They cited cash flow issues and requested a payment plan. While we have a duty to put forward any proposals to our client for consideration, our advice was to decline the over of payment in three monthly instalments, which they did.
It was made clear to the debtor that our client would not entertain anything less than full immediate payment. The same day and just 24 hours after issuing the Notice of Insolvency Proceedings, we received full payment, including our fees claimed under late payment legislation. We transferred the full account balance to our client within 30 minutes of receipt and three days before their month-end payroll date.
Robbing Peter to Pay Paul
How did they find the money to pay? No doubt they had robbed Peter to pay Paul and diverted funds intended to pay other debtors. It would be no surprise to receive further debt collection instructions against this company in the near future.