Five thousand small businesses went belly up last year directly because of slow payment, according to figures from the Forum for Private Business. A recent survey among FPB members showed that the average payment was 77 days, compared with standard terms of 30 days. And for many more than those 5,000, profits are completely wiped out by the cost of unarranged credit.
When a company or an individual owes you money but won't pay, you can now fight your case relatively easily and cheaply through the courts. In January the ceiling on small claims rose to pounds 3,000.
But before taking action, the Dun & Bradstreet business information service says you should make sure all genuine disputes which may inhibit payment are resolved - for example, if you've delivered fewer goods or services than invoiced for.
Also, have all other methods of collection been exhausted - have you written chasing letters, cajoled, and threatened legal action? A solicitor's letter giving notice of a County Court summons, costing around pounds 10, is often all the pressure debtors need to prompt them to pay up.
The other question you must ask is whether the debtor is likely to be able to pay.
The County Court procedure - which includes small claims - is fairly straightforward. The individual can take action without legal representation by following the leaflets dispensed at the County Court. If the case is uncontested, you can go through all stages by post. Court fees are on a sliding scale - pounds 10 to pounds 80. You pay pounds 60 on a debt of pounds 550, for example. There may be extra charges for enforcement procedures - for example, sending in the bailiffs - if you still don't receive the determined amount after you obtain judgment.
If you do seek help and the judgment goes in your favour, you can load limited legal costs on to the debt the loser owes you.
It is often worth pursuing larger debts in the High Court as opposed to the County Court. The High Court is a parallel system to the County Court, but can be more effective. Disputes are quicker to resolve, and the sheriff who enforces claims is generally seen as being more motivated than the bailiff employed by the County Court. However, High Court actions are more expensive because you have to be represented by a lawyer. The High Court charges a fixed fee of pounds 120. Costs can be recovered if you win.
If the customer you are chasing goes into liquidation or bankruptcy, and the money they owe you is an unsecured debt, you stand precious little chance of getting paid. At the top of the pile of creditors are the insolvency practitioners, who are charged with winding up the company and distributing the remaining assets to creditors. Next come secured creditors, like the banks.
Smaller creditors will occasionally do deals to provide goods or services on a secured basis, if the perceived risk is high and if there are any company assets not as yet pledged to someone else in the event of default. Then come preferential creditors like the large government departments - VAT and PAYE.
At the bottom come the unsecured trade creditors - most self-employed people are in this category. Nowadays the paucity of assets allows unsecured creditors a very slim percentage of liquidation dividends.
You can also take legal action through the County Court against customers to make them go bankrupt - called a winding-up petition. This can cost pounds 750 upwards, however. The threat can be a useful shot across the bows to scare them into paying. But if they can't pay and are wound up, again, you are unlikely to get your money.