Meltdown of court system leaving small businesses dangerously exposed

Delays in the court process, compounded by COVID-19, are allowing businesses to potentially cheat their suppliers out of their hard-earned cash, a cashflow entrepreneur has claimed.

Gary Brown, founder of Debt Register, an automated digital platform to collect business debts, says that a meltdown in the court system is not only failing suppliers, but also allowing their customers to get away without settling their debts, and often without any harm to their own credit rating.

He has calculated that in the last two years, the average time it takes for a business to have their day in court for a small claim (i.e less than £10,000) has increased to a whopping 50.7 weeks – a full 12.6 weeks longer than it took before the pandemic in 2019.

For larger debts (multi/fast track claims for debt in excess of £10,000) the wait is even longer – an incredible 70.6 weeks.

“What this means in simple terms,” Gary says, “is that if you issue a legal claim today for an outstanding commercial debt and it is allocated to the multi/fast track within the UK court, and the company being sued offers a defence, then we would be looking at a trial date of around September/October 2023! And you have to remember that it can take two or three months of paperwork and letters before action ahead of being able to issue a claim in the first place!

“Bad businesses know this and put up a spurious defence, knowing that the claimant often loses the will to pursue the debt any further. For the larger debts, the claimant is obliged to pay a £1000 court fee upfront, so effectively throwing good money after bad.”

Gary says bad businesses are also getting away with ramping up bad debts, but without any damage to their credit rating: Companies House allow a company 18 months to file their accounts, extended to 21 months because of COVID, and credit reports algorithms are driven from past trading history and most recently available financial data.

Negative court data – if such data exists – is also included within a credit report, but only impacts a company’s profile if, and when, a judgment is awarded: “So basically it could be three years after the event before any other business would have visibility of that company’s poor payment record – and that’s three years in which many other suppliers could suffer significant loss.”

Gary has created an innovative Fintech that enables businesses to avoid the delays of court action altogether.

In simple terms, Debt Register is a software platform that automatically identifies and verifies email contacts within a customer who is responsible for paying the bills. (Incorrect emails are still the biggest cause of requests for collections going unanswered.) It asks for a bill to be settled, with the consequence of failing to do so resulting in the company being reported to the leading credit reference agencies (CRAs). This damages their credit score, as well as their reputation, in an age when payment performance must be reported to shareholders.

“There are hundreds of businesses out there who generate large volumes of often low value debt, where their only solution to late payment is to write it off or go through the courts. But with the court system having all-but ground to a halt, and with no guarantee of success anyway, I felt there just had to be a better way. And so Debt Register was born,” Gary continues.

“Debt Register delivers a tangible and direct consequence for those companies should they continue not to pay an undisputed, overdue invoice,” he adds, “and it is this ‘consequence’ that seems to concentrate the mind!”