When contractors should take a company to court over late or non-payment

It’s no secret that far too many contractors have to go through the hassle of chasing money they are owed from a client. For some, it’s actually an all too familiar routine, writes Adam Home, managing director of Safe Collections.

It can often be a frustrating, stressful experience. And once you feel you have exhausted all other alternatives, and emotionally you’ve reached the end of your tether, inevitably, thoughts will turn to going down the legal route and making a claim through the courts.

Small claims procedures in county courts are intended to offer a fast-track resolution for claims up to £10,000 in value -- against individuals and businesses. However, despite the ‘fast-track’ tag, even official government advice acknowledges that there can be quicker and cheaper routes to recovering money you are owed, such as mediation.

That is why we would generally recommend legal action only as a last resort. But if you are seriously mulling over filing a claim, there are still three key things you should consider.

1. Is it going to be financially worthwhile to pursue the case?

Court fees operate on a sliding scale depending on the size of your claim. But these direct costs are not the only thing you have to consider.

Pulling all the evidence together for your claim, drafting the paperwork and so on, takes time and effort. Things can in some cases drag on for months at a time, and you have to weigh up how much you might be diverting your time away from doing other more profitable things for your business. There are also incidental expenses to factor-in, such as travel costs for attending hearings, especially if the defendant is based a distance away from you.

Incidental or indirect costs such as these can mount quickly as can hourly charges from a solicitor if a small claim is defended; and generally, these costs cannot be recovered from the other side in a majority of cases even if you win the claim.

2. Can you prove the case to the court's satisfaction?

If you are going to put the time and money into pursuing a claim, you have to be pretty certain that you will win! Do you have solid evidence to back up your claim, preferably in the form of a contract or agreement detailing the agreed fees, unpaid invoices, letters you have sent pursuing the payment and so on? Are you confident you can counter any query or dispute raised by the debtor to suggest the claim is not valid, again backed up by written evidence?

In disputed cases or those with a significant technical aspect outside of the courts’ experience, you may also require the services of an expert witness and again, their fees are generally not recoverable even if you win the claim.

3. Does the debtor have the means to pay if you win?

Finally, none of the above is worthwhile if, after all your hard work and effort, it turns out that the defendant cannot actually pay when you win your claim. If you are making a claim against a limited company, you can get a credit report that provides an indication of its current financial health, including records of any other court judgments the company may have incurred.

If you are pursuing money from an individual, it is similarly useful to check whether they have ever been declared bankrupt (you can look this up in The Gazette) or whether they have any outstanding CCJs against them.

If a company or individual clearly has no money, or very limited assets that can be seized in lieu of payment, you have to question whether you’d ever get your money even if your claim was successful.

In that situation the wisest choice may be simply to write-off the balance, rather than take action that only serves to increase your existing losses.