Bad debt. Worth pursuing?

[Salvadore]

As a favour to a friend, I took on a client who is a friend of his son (I’m an employment law consultant) without insisting on the normal advance retainer. The guy had a reasonably strong case and I was confident of a positive outcome at the WRC.

I sent him an invoice a couple of months ago in respect of some initial work. Time passed without payment and ge ultimately decided not to proceed with his claim. He has acknowledged that he owes me but has so far failed to pay.

The amount involved isn’t huge (about €450) but I’m annoyed with his behaviour and that he thinks this is acceptable. I’ve also had to pay the associated VAT.

Any advice on how to pursue? Is it worth getting a debt collection agency involved? Small amount but it’s the principle involved.

 

[T McGibney]

I’ve also had to pay the associated VAT.

How and why?

You're hardly turning €2m a year?

PS

I'd write off the €450. Life is too short for "the principle".

 

[Brendan Burgess]

The amount involved isn’t huge (about €450) but I’m annoyed with his behaviour and that he thinks this is acceptable. I’ve also had to pay the associated VAT.

If you write it off, you can reverse the VAT. So VAT is not an issue.

 

[Brendan Burgess]

Any advice on how to pursue?

It's annoying. But call him and ask him to pay it.

Explain that if he is having difficulty, he can pay it in instalments.

It is absolutely not worth getting a debt collector or solicitor involved. They are unlikely to get paid either.

 

[Salvadore]

How and why?

Correct me if I’m wrong but according to Revenue vat is payable from when the invoice issued rather than when it was paid.

And what’s the significance of the €2m?

 

[T McGibney]

according to Revenue vat is payable from when the invoice issued rather than when it was paid.

Who may opt for the moneys received basis?​

You may apply to account for Value-Added Tax (VAT) in this way if you are a VAT registered person:

• whose turnover does not exceed, or is not likely to exceed, €2,000,000 in any continuous period of 12 months
• or
• whose supplies (at least 90%), are made to customers not entitled to claim a full deduction of VAT or who are unregistered for VAT.

 

[JamesBM]

Who may opt for the moneys received basis?

This page explains who may opt for the moneys received basis of accounting for VAT

www.revenue.ie

You can elect to pay VAT on a "moneys received basis" if your turnover is less than €2m

 

[Brendan Burgess]

Correct me if I’m wrong but according to Revenue vat is payable from when the invoice issued rather than when it was paid.

You are correct.
But if you process a credit note, it will effectively give you back the VAT.
You don't send the Credit Note to your client.
If he does actually pay it, then you put through a new invoice.

 

[Salvadore]

You can elect to pay VAT on a "moneys received basis" if your turnover is less than €2m

Didn’t realise that, thanks. Wasn’t the steer I got from the Revenue official I spoke with.

 

[T McGibney]

Wasn’t the steer I got from the Revenue official I spoke with.

You shouldn't really depending on those people for advice on anything. Google would have given you a correct steer in a few minutes.

 

[JoeRoberts]

Keep chasing it. Offer a payment plan as well. Then start adding interest.

 

[dublin67]

My understanding is that businesses can now use the small claims court so long as it is within the €2,000 (or so) - might be worth the process if you want to cause a lot of aggrevation.

 

[ClubMan]

I'm not sure that the Small Claims Court is of use/relevance here?

Small claims procedure

The small claims procedure provides an inexpensive, fast and easy way for consumers to resolve disputes without a solicitor. Find out how the procedure operates.

www.citizensinformation.ie

The small claims procedure cannot be used to make consumer claims for debts, personal injuries, or breaches of leasing or hire-purchase agreements.
...

Can a business claim against another business?​

Since January 2010, businesses can make claims against other businesses relating to contracts for goods or services purchased.

It does not apply to claims about:

• Breaches of leasing agreements
• Debt or liquidated damages
• Agreements to which the Consumer Credit Act 1995 applies

 

[T McGibney]

My understanding is that businesses can now use the small claims court so long as it is within the €2,000 (or so) - might be worth the process if you want to cause a lot of aggrevation

It's totally useless, in my experience.

The only aggravation is to the person left out of pocket in the first instance.

 

[Dr Strangelove]

I sent him an invoice a couple of months ago in respect of some initial work. Time passed without payment and ge ultimately decided not to proceed with his claim. He has acknowledged that he owes me but has so far failed to pay.

It's a cultural thing in Ireland not to assume that professionals incur costs before a decision is taken to proceed with a job.

without insisting on the normal advance retainer.

Sadly I think this was your error.

He has acknowledged that he owes me but has so far failed to pay.

It's not unreasonable to send him a letter once a month (copy by email) and make attempts to call him at the same frequency. Be open to an offer to settle for less.

 

[peemac]

Give it a last push.

Tell him you will accept €350 as a full and final payment.

If its not forthcoming say you will likely sell the debt to a debt collection agency.

Explain that whilst the agency may issue legal proceedings that will add up to €441+vat to the debt it may also immediately affect your credit rating with any service provider you use that uses that agency for credit management and this may mean difficulty in getting services on credit for as long as the debt remains unpaid.

Should the agency commence court proceedings, this may affect your general credit rating for several years and cause you issues in obtaining car finance and mortgages for a period of up to 5 years after the debt is settled.

Hence I think the offer of a reduced payment of €350 in full and final settlement is a very generous option.


Note the use of "may"

 

[Brendan Burgess]

Tell him you will accept €350 as a full and final payment.

Make that conditional on payment being received by a certain date. If not, you will sue for the full amount.

Early in my business career, I gave a client a discount after much negotiation. Let's say it was €3,000 down to €2,500.
He didn't pay anyway so I had to sue him.
I could only sue for the €2,500 which really annoyed me.
I did get it but after a long time in the courts. And if I recall correctly, the costs awarded by the courts are not enough to cover the costs of a competent solicitor.
But the client did end up paying €2,500 + some of my costs.

Since then, I always made discounts subject to payment by a certain date so that if I had to sue, it would be for the full amount.

 

[AlbacoreA]

I think it's cheap lesson learned. But perhaps following it up is also a lesson.