Debt collection terms

A

Accounts payable

All monies a business owes a creditor for the provision of its goods or services.

Accounts receivables

All monies a business is owed in return for the provision of its goods or services.

Administration order

A court order that allows a county court to administer all your payments to creditors. Applicable if you have at least one County Court or High Court Judgment against your business, combined debts of under £5,000 across two or more creditors, and cannot afford to pay the full amount each month. One payment is made to the court which splits this sum between each creditor on a pro-rata basis. Additionally prevents creditors from taking further action against you.

Administrator

A licensed Insolvency Practitioner, appointed by the court under an administration order, to ensure the proposals in the order are carried out. The administrator will then propose a plan for approval by all the company’s creditors.

Advance billing

When an invoice is raised before the goods are delivered or service commenced.

Adverse credit history

A business with an adverse credit history has a poor record of settling debts within agreed credit limits, making them undesirable to offer credit to.

Aged debt report

A document detailing the balances a business is owed from each customer, split either by the invoices’ issued dates or due dates.

Arrears

A legal term for overdue debts.

Assignment

The process whereby a company sells a debt to another company.

Audit

A business review service that assesses various aspects of a business’s operations, such as their financial accounts and sales ledger performance.

B

Bacs

Bankers’ Automated Clearing System: the process by which funds are transferred electronically from one bank account to another, taking three days to clear.

Bad debt

Money that is owed to a business that’s considered irrecoverable.

Bad debt relief

Reclaiming the VAT paid to HM Revenue & Customs for the sale by writing off bad debts of more than six months.

Bailiffs

A person employed by the court to remove non-essential belongings from a debtor’s property and auction them, with the money going towards settling an overdue debt.

Bailiff’s certificate

A certificate awarded by the court to a bailiff who is deemed a ‘fit and proper person’. This should always be available for inspection when carrying out their work, including their photographic identity, the judge’s signature and the court seal.

Balance sheet

An annual statement that gives a business’s financial position, detailing all assets and liabilities at a given date.

Bankruptcy

A legal process where a business is declared insolvent and therefore unable to settle any outstanding debts. Any remaining assets are transferred to a trustee and sold to settle debts, with any remaining arrears written off.

Business health check

An external assessment of a business’s performance in key areas, including financial performance, funding facilities and credit control processes.

Business restructuring or turnaround

The reorganisation of a business’s structure in order to make it more profitable.

C

Cash flow

A measure of a company’s immediate financial health that is calculated by cash receipts less cash payments over a specific period in time.

Certificate of satisfaction

A certificate from the court to signify that a County Court Judgment has been paid in full.

CHAPS

Clearing House Automated Payment System: a telegraphic transfer by which funds can be processed and cleared on the same day for a small fee.

Charge for payment

A document served In Scotland that requires a debtor to settle a debt in full within a given timescale – usually 14 days. Similar to County Court Judgments in England and Wales.

Company registration number

A unique number given to a business when it is registered with Companies House.

Company Voluntary Arrangement (CVA)

If a limited company is declared insolvent, it can apply for a Company Voluntary Arrangement (CVA) through an insolvency practitioner. The CVA itself is a document produced that contains a proposed schedule to pay creditors what they are owed. If 75%, in terms of debt value, of the company’s creditors agree to the CVA at a meeting arranged by the insolvency practitioner, the company can continue trading, with the scheduled payments made through the insolvency practitioner until they are fully paid off.

Compulsory liquidation

When a business is liquidated by request of the court.

Concentration

The percentage of a business’s sales ledger value that is accounted for by a particular client.

Consumer Credit Act 1974

An Act of Parliament that regulates the credit services industry in England and Wales, most recently amended in 2006.

Contractual payments

A business’s monthly credit commitments that were agreed upon signing the credit agreement.

County Court Judgment (CCJ)

A judgment issued by the courts that requires a debtor to settle a debt within a certain time frame. If the amount is not paid within one month, the CCJ will be placed on the debtor’s credit record for six years.

Court claim form

A formal document sent by a creditor to inform the debtor that they have begun legal proceedings against an unpaid debt. The debtor then has 14 days to respond; failure to do so will automatically result in a County Court Judgment being registered.

Credit control

The process that describes the seller’s efforts to collect payment from a customer for goods or services that have been supplied on credit terms.

Credit insurance

Protects businesses from late payment of commercial debts due to insolvency or protracted default, where the insurer assumes the risk and pays the client a percentage of the sales ledger value in such an event. Subject to designated credit limits, credit insurance can either be provided as a standalone product or incorporated into various cash flow solutions, such as non-recourse invoice finance.

Credit management

The task of managing a business’s order-to-collections process, allocating enough time to each individual invoice in order to recover debts within the agreed credit periods.

Credit period

The time during which a debtor is contractually obliged to pay for the goods or services purchased.

Credit rating

Calculated using a business’s financial history, current assets and liabilities, a credit rating essentially indicates to a potential seller the customer’s ability and likelihood of settling a debt within agreed credit terms.

Credit reference agency

Companies that provide information to lenders and businesses, upon request and for a small fee, regarding the credit rating of companies they are considering offering credit to.

Credit reports

A document supplied by credit reference agencies that details a business’s credit history, including vital company information, their credit rating and whether or not any County Court Judgments have been registered against them in the past six years. Available on request for a small fee, credit reports assist lenders and businesses when making a decision regarding whether or not to offer credit to a potential customer.

Credit terms

The conditions by which a purchaser of goods or services are contractually obliged to adhere to when buying on credit. These terms state the agreed time frame inside which the buyer must pay, as well as the financial charges that will be levied in the event of late payment.

Creditor

A person or business that is owed money.

Creditors Voluntary Liquidation (CVL)

A procedure in which a business’s directors choose to bring the business to an end by appointing a liquidator to liquidate all of its assets. This is different to a compulsory liquidation, which is forced upon an insolvent company via a winding up order made by the court.

Creditworthiness

A term used to describe the ability of a business to make payments on time when offered credit terms.

D

Day Sales Outstanding (DSO)

The average number of days it takes for a business to recover monies in full after a sale has been made, indicating the efficiency of their credit control processes.

Debt

The total value of the money owed to a creditor.

Debt collection agency

A specialist company that dedicates time and resource to recover debts on behalf of its clients.

Debt relief order

A form of insolvency that clears a debtor’s debts of under £15,000, if unable to pay them. Considered a last resort as it greatly affects the business’s credit rating.

Debt restructuring

A process that allows businesses to reduce and negotiate its debts to make the terms of repayment more manageable, thus boosting the liquidity of the company.

Debtor

A person or business that owes money to another.

Debtor book

See ‘Accounts receivable’.

Debtor days

See ‘Day Sales Outstanding’.

Default notice

A formal letter sent to a debtor upon defaulting on a payment, explaining that they have failed to meet their contractual obligations when purchasing goods or services from them, as set out in the credit terms, and that further steps shall be taken in order to recover the monies owed. These notices will be held on the debtor’s credit record for six years.

Direct debit

An instruction given to a bank for them to collect an amount from another bank account on a given date. Unlike standing orders, direct debits can be used for varying amounts.

Dispute

Arises when a debtor queries all or part of an invoice.

E

No terms.

F

Factoring

An invoice finance facility where a funder releases cash against the client’s sales ledger within 24 hours of an invoice’s issue, freeing up capital to boost its cash flow. The factor further provides a dedicated sales ledger management service to recover the debts on behalf of the client. There is also the additional option of a non-recourse facility that incorporates debtor protection, thus protecting the client from debtor non-payment.

Financial Conduct Authority (FCA)

The regulator of the UK’s financial services industry.

Forward dating

Any invoice that’s dated later than the delivery of the goods or commencement of the service, affording the purchaser longer credit terms.

Fraud

Deceiving a person or business with inaccurate information in order to gain a competitive advantage.

G

Guarantees

A legal commitment to pay a debt in the event the business fails to do so.

H

Her Majesty’s Revenue & Customs (HMRC)

The administering body responsible for the timely collection of consumer and business taxes.

I

Informal arrangement

Term used to describe the agreement that the debtor will make reduced payments to its creditor without the assistance of a third party.

Initial writ

A document that raises a court action in the Sheriff Court.

Insolvency

A legal process where a business is declared insolvent and therefore having insufficient funds to meet a business’s credit commitments.

Insolvency Act 1986

The statutory legislation governing insolvency law and practice in the UK.

Insolvency Practitioner (IP)

A person who is fully licensed and qualified to deal with insolvency proceedings and insolvency law.

Insolvency Rules

The Insolvency Rules 1986 provide the working procedures for the Insolvency Act 1986.

Insolvent

Any business or individual with insufficient funds to meet their credit commitments, i.e. when total liabilities exceed total assets.

Interest rate

The rate charged on the value of the money being borrowed, usually displayed as an annual percentage.

Interim order

A court order that prevents bankruptcy whilst a debtor is preparing a voluntary arrangement to its creditors.

Invoice

A form issued by a seller that itemises the goods or services provided, and at what cost.

Invoice discounting

An invoice finance facility, typically provided on a confidential basis, where a lender releases cash against a business’s sales ledger within 24 hours of an invoice’s issue to free up capital and boost the client’s cash flow. Unlike factoring, the client retains control of their credit management. There is also a non-recourse option that incorporates debtor protection to protect against debtor non-payment.

Invoice finance

An umbrella term for a funding solution that releases capital against a business’s sales ledger to boost the client’s cash flow, such as factoring and invoice discounting. Facilities can be tailored to a business’s individual cash flow requirements.

J

No terms.

K

No terms.

L

Late Payment of Commercial Debts (Interest) Act 1998

An Act of Parliament, later revised in 2002, which allows businesses to charge interest on debts that have exceeded their credit terms. Interest is 8% plus the Bank of England Base Rate, whilst firms are additionally eligible for compensation ranging from £40 to £100, depending on the invoice value. Claims can be made at any point during the six years following the invoice’s due date.

Letter before action (LBA)

A formal letter sent to a debtor informing them of the creditor’s intention to begin legal proceedings if an overdue debt remains unpaid in seven days typically. Also known as a ‘seven-day letter’.

Liquidation

A process whereby all the business’s remaining assets are sold off to pay its creditors before the business itself is dissolved. Any excess monies are distributed among the company’s shareholders.

Liquidator

A licensed Insolvency Practitioner appointed to liquidate, or dissolve, a company.

M

No terms.

N

Nominee

A licensed Insolvency Practitioner appointed to oversee a company voluntary arrangement.

Non-recourse facility

An optional part of an asset based finance solution which provides debtor protection to shield the company against debtor non-payment through either insolvency or protracted default, subject to designated credit limits.

O

Office of Fair Trading (OFT)

The regulatory body that protects consumers from bad business practice.

Order-to-collections process

The term used to describe a company’s credit control procedures between the moment an order is placed with the business and the moment the invoice has been paid in full.

P

Preferential creditor

See ‘Secured creditor’.

Proof of debt

A document filed by the creditor to the Insolvency Practitioner that details the value of the debt owed in the event of a compulsory liquidation.

Proof of delivery (POD)

A method of confirming receipt of the goods supplied to the debtor, and that the products are in good condition.

Protracted default

Non-payment of debts after six months.

Proxy

A document that authorises another person to attend a creditors’ meeting on the creditor’s behalf.

Proxyholder

A person who attends a creditors’ meeting on the creditor’s behalf under a proxy. The proxyholder may or may not have discretion as to how he or she votes.

Q

No terms.

R

Receiver

A person appointed by a secured creditor to take control of the debtor’s assets.

Receivership

A procedure by which a creditor gains security against a debtor’s assets in order to obtain payment for the goods or services provided.

S

Sales ledger

See ‘Accounts receivable’.

Secured creditor

A creditor that’s entitled to receive payments in priority to unsecured creditors when funds are distributed by a liquidator or administrator. To qualify as a secured creditor, you must have a charge over a specific asset or alternatively a debenture over the assets of the business.

Set aside judgment

If you are a defendant and were unaware of any claim being made against you until following the judgment, you can apply to set aside judgment. If agreed, it will stop the Claimant from being able to enforce judgment.

Small claims

Court procedure used for the recovery of debts with a value of less than £3,000.

Statutory demand

A formal notice requiring the debtor to pay an outstanding debt, either in instalments or in full, within 21 days. Failure to do so will lead to a winding-up petition.

Summary cause

Court procedure used for the recovery of debts with a value of between £3,000 and £5,000.

Summons

A document used to raise court action when a creditor is suing its customer for an unpaid invoice.

Supervisor

A licensed Insolvency Practitioner appointed to supervise the implementation of an approved voluntary arrangement.

T

Terms and Conditions (T&Cs)

The terms of trade that are agreed upon purchasing goods or services.

Token payments

Small payments made to creditors when a debtor is unable to settle a debt within the agreed credit terms, signifying their intent to pay when possible.

U

Unsecured creditor

Any creditor that holds no preferential rights, therefore placing them behind secured creditors in the queue to receive monies owed when funds are distributed by a liquidator or administrator.

V

No terms.

W

Winding-up

See ‘Liquidation’.

Winding-up petition

A legal document presented to the courts seeking a court order for a business to be placed into compulsory liquidation.

Working capital

The immediate cash a company has available to spend on assets and its day-to-day operations. This is calculated by deducting current liabilities from current assets.

X

No terms.

Y

Year-end accounts

The financial documents that must be submitted to Companies House at the end of a business’s financial year, including a balance sheet and profit and loss account.

Z

No terms.