Managing cash flow efficiently is particularly pressing in the current climate. A tightly worded contract can help ensure on time payment, but it is not always possible to provide for every eventuality and disputes can significantly impact cash flow. There are three basic options to resolve such disputes and get paid quickly:
- Alternative Dispute Resolution (ADR);
- Issuing a claim in the courts; or
- Bankruptcy or Winding Up Proceedings.
ADR
The courts encourage parties to enter into ADR to resolve matters without incurring the full costs of trial and to help commercial relationships continue. The type of resolution will be dependent upon the contract and the nature of the dispute; in most cases a single joint expert will be selected according to the type of dispute (e.g. a Chartered Surveyor for a boundary dispute). The appointment of a Mediator can also be cost effective; this essentially involves negotiation in general terms which is often capable of resolving disputes by compromise.
Court Claims
The following is just an example of what happens when a claim goes through the court and applies to a broad range of disputes. A contracting party failed to pay an invoice from Mr X, a farmer, within the relevant period, citing various problems as the reason for the payment delay and asking that a reduction be given in the amount due. In order to avoid such delaying tactics impacting Mr X’s cash flow he decided to issue a formal claim.
Where the claim value is less than £5,000 it is usually better to prepare the paperwork yourself as legal costs are rarely recoverable, but Mr X’s claim value exceeded this figure and so he sought legal assistance to ensure court deadlines were met - failures to comply with court rules can leave claimants at a significant disadvantage. Mr X won his case and recovered the full costs of his claim. Legal costs are usually recoverable by a successful claimant, in part if not in full, and therefore provided the case has sufficient merit, instructing solicitors to litigate can be without any client cost in the long term.
Most small claims are settled before they reach the courts; in fact only 2% of cases ever result in a full trial. A number of strategic mechanisms are available to speed the process and an offer to settle is usually received fairly early after the claim is issued. One benefit of strictly following time limits is the ability to succeed in your claim where a defendant has failed to acknowledge it within 14 days or file a defence within 28 days.
Formal litigation is not always the best course of action but as we see here, it can solve cash flow problems very quickly indeed.
Methods of enforcing a successful judgment and the opportunities available from the use of Bankruptcy and Winding-up Petitions are also relevant here, but their complexity demands a separate article!
If you are having problems with non payment, contact Mark Wrinch or a member of the Rural Business Team at Birkett Long LLP on 01206 217383 or visit our Rural page.
