Whether you’ve been there before or it’s something you’ve got ahead of you, almost every tradesperson has to deal with customers who refuse to pay.
This can be incredibly damaging for small businesses, but even for established companies these kinds of losses can be hard to take.
Whatever your experience, often the overriding feeling is one of powerlessness. The good news is, there are steps you can take to try and reclaim some of what you lost and protect your business from damage.
When you think of the small claims court, most business owners conjure up images of angry customers trying to wring money out of them on dubious grounds.
The truth is that the small claims court is just as much for the business as it is for the individual.
Any company can use the small claims court to deal with financial claims up to a maximum value of £10,000 in England and Wales and £5,000 and £3,000 in Scotland and Northern Ireland respectively.
This is a low-cost and efficient method of dealing with relatively low-value disputes without incurring large legal bills.
In the UK, the SCC is designed to handle minor civil disputes that have failed to be resolved directly.
Claims are filed online, through the government's Money Claim Online service or by submitting a paper form to the court. This involves paying a fee (ranging from around £50 to £450) based on the amount you’re claiming.
Once the claim is filed, the court notifies the defendant, who can either agree to the claim, offer a settlement, or dispute it by providing a defence.
If the claim is disputed, the court will give directions for preparing the case, including exchanging evidence.
If the defendant fails to respond then a default judgment in favour of the claimant will be issued.
On the hearing day, both parties will present their cases informally before a judge, who will ask questions and review the evidence. After the hearing, the judge will make a decision on whether you have won the claim and how much the defendant must pay.
If you win and the defendant does not pay, you can take additional steps to enforce the judgment, such as hiring bailiffs or garnishing wages.
One of the main benefits of using this court system is that once a claim has been won, it gives you more options for getting your money back.
The first tool is the threat of a CCJ or county court judgement.
If the accused party is issued a CCJ, then this will be recorded in the Register of Judgments, Orders, and Fines.
Credit reference agencies use this register to update the accused party’s credit record damaging their credit score and making it more difficult for them to take out loans.
If the payment is made within a month of the judgment date the record is removed. If it is paid after a month the CCJ will remain but be marked as satisfied.
There are also other steps a person can take to reclaim their money if they win in a small claims court. These include:
However, do bear in mind that all these methods will incur extra costs. So as the old adage goes, don’t sue someone who has no money, you’ll lose more than you gain.
No, you do not need a lawyer to use the small claims court. The small claims court is designed to be user-friendly and accessible, allowing individuals to represent themselves without the need for a lawyer.
This does mean that need to come well prepared. Make sure you bring all the relevant evidence you can. Documents, images and any other relevant sources should be brought to the table. You should be ready to explain the evidence and how it supports your claim.
The first rule to remember when taking someone to the small claims court is that you are unlikely to get all your money back.
In fact, research has found that one in four people who win an SCC case only receive part of what was granted and 6% receive nothing at all.
This means that by the time you’ve paid the fees associated with using the small claims court, you might end up worse off than when you started.
To help you out with this we’ve broken down the costs for you so you know what you’re getting into and whether it’s worth it.
At the top end, the most expensive case is likely to cost around £1,450. At the cheapest end, your costs could be as low as £35.
This is the breakdown of your costs depending on the value of your claim.
When you factor in the time taken to file the claim, receive a response, schedule the court, prepare, do the hearing and receive the judgement, then a claim can take anywhere from 3 to 6 months for a simple case and 6 to 12 months or more for a more complex case.
If you’re trying to establish whether it’s worth your while pursuing a claim in this court then you should weigh up the pros and cons on a case-by-case basis.
Here are a few things you should think about.
Costs are lower than a normal court - Unlike a normal court, you don’t need to pay for an expensive lawyer as you will represent yourself. Filing fees are also far lower.
Cases are dealt with quickly - SCC cases are decided relatively quickly, rarely taking more than a day to complete the hearing.
A relatively simple process - The process is designed to be straightforward, with less formal procedures compared to higher courts.
Not tied to a location - A major benefit for trades businesses is the fact cases can be filed at the claimant's local court regardless of where the defendant is situated.
Monetary Limits - The maximum claim amount is limited to £10,000 (in the UK). You may well be dealing with jobs well over that figure but are still too low to get lawyers involved
Self-Representation Challenges - While the system is set up to make it easy for you to represent yourself, it may still be challenging to navigate the legal system without any prior knowledge and it will certainly cause things to take longer than otherwise.
Enforcement Difficulties - Even if you win the case, enforcing the judgment can be difficult and may incur additional costs.
Time and Effort - Preparing and presenting your case requires time and effort, which can be stressful, time-consuming and costly for your business.
No Legal Advice - The court staff cannot provide legal advice, so you might still need to seek legal guidance for complex cases.
Further Costs - Despite being a more cost-effective option than hiring a lawyer this process can still end up being expensive, especially if you lose and end up having to pay all fees.
If you bring a case to the small claims court and, as the claimant, you lose, then there are some repercussions you should consider.
You will need to cover all your court fees and any legal costs you incurred. You might also be ordered to pay some of the defendant's reasonable expenses (however this is rare in Small Claims Court).
You will also have to deal with the smug look on the face of the defendant who will have gotten off scot-free.
Other than these consequences, your main loss will be the money or dispute that you weren’t able to resolve in your favour.
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