Aged debts – how much can I recover?


Recently we’ve been talking about aged debts, which is not an entirely technical term but loosely means anything you might normally give up on, or anything that’s getting close to the six-year cut-off point put in place by the statute of limitations.

We all face non-payment from time to time, and in amongst all the other credit control work, invoicing and general admin – financial and otherwise – it can feel like some debts are not worth chasing, especially if the invoice is a relatively small one in the grand scheme of your business.

Fast-forward five years, and you may still have 12 months left to try and recover the debt before the statute of limitations kicks in.

So just how much might you be able to claim?

Fixed Penalties

The first thing to add is a fixed penalty, depending on the size of the debt – and that is, of course, the amount of the original invoice that is still outstanding on the deadline date, and which should still be outstanding regardless of how many months or years have passed since, if you’ve never managed to recover the debt.

On debts up to £1,000 you can add £40.

On debts of £1,000-£10,000 you can add £70.

On debts over £10,000 you can add £100.

OK they’re not huge amounts, but they’re the first step towards increasing the amount your debtor has to pay.

Statutory Interest

Statutory interest is calculated based on the Bank of England’s ‘reference rate’, which in turn is just the base rate at either of two specific points in the year.

It’s officially set on December 31st for the first six months of the following year, and June 30th for the last six months, although if you know the rules about when the Monetary Policy Committee meet to vote on the base rate, you can give yourself a 3-4 week headstart on knowing what’s coming.

The statutory interest rate is set at 8% above the base rate on those dates – and even with the base rate at a historic low right now, that’s still a good rate of return on any long-term debts.

Debt Recovery Fees

Finally, you can now claim reasonable debt recovery fees back from the debtor, so you’re not left out of pocket by chasing for payment.

Remember though, you’ll have to actually be successful in order to claim your fees back from them, so if that six-year deadline is approaching, act fast to avoid incurring any costs and then finding yourself statute-barred from recovering the debt.

The fixed penalty fees mentioned above must also be counted towards your costs first – so if you’ve charged a £40 penalty then incur debt recovery costs of £50, for instance, you can only ask the debtor for the £10 balance.

It’s worth recognising that while this might not increase the amount you receive, it certainly increases the amount the debtor has to pay, so if you’re out for revenge, it’s still well worth it.

An Example

Let’s look at a very basic example – a five-year aged debt originally worth £100.

With a statutory interest rate of 8.5%, you’re entitled to add about 2.3p to the total per day (two and a third pennies, to be precise).

Over five years, that comes to about £42.52, depending on how many leap years there have been, and you can add the £40 fixed penalty on top of this too.

That takes the original £100 debt to £182.52, with an extra tuppence going on top for each day the outstanding balance goes unpaid.

You can add reasonable debt recovery costs on top of this, subject to counting the £40 penalty towards them, and if you suddenly show up with proof of an outstanding debt that has now incurred a total of more than 80% in extra costs, even debtors who were reluctant to pay at the time are likely to sit up and listen.

It’s an excellent way to prove you are to be taken seriously, deal with any current short-term cashflow problems, and really boost your bottom line by calling in your debts – quite literally – complete with the generous rate of statutory interest added on top.

If you would like to talk to a member of our team please don’t hesitate to call 0808 115 5453

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