SAIF Golden Charter

Considering repayment agreements

Pursuing customers over outstanding debts is one of the least pleasant aspects of business at the best of times, but even more so when those customers are likely to be grieving for a loved one.

It is also, of course, a time-consuming and frustrating process. Unfortunately, problems in relation to paying for funerals are only likely to increase, with over 12 million people in the UK having no savings whatsoever to rely on.

Prevention is always better than a cure, and in any event it is always good practice to draw up a standard set of terms and conditions and give each customer a copy before you provide your service. You will probably wish to refer to your terms on your invoices. Terms and conditions should cover how and when you expect payment. Unless you include a specific payment date on your invoice, the customer must pay you within 30 days of receiving the invoice, otherwise you can take action against them to recover the debt. It may be wise to also include a debt recovery clause. This will not only inform your customers of the potential consequences of non-payment, but will hopefully also act as a deterrent.

For example, such a clause could provide that interest will be added to the amount owing and if you have to commence court proceedings that you will seek to recover from them the court fee for doing so (although there is no guarantee that the court will order this). At the time of writing, the average cost of a funeral is anywhere between £3,000 and £5,000 and the current court fee for a judgment in relation to this level of debt is £205.

When a customer accepts that the money is owed, agrees on the amount owing and is unable yet willing to pay their debt, you may wish to offer to enter into a repayment agreement with them rather than immediately resorting to debt collection or court proceedings. A repayment agreement should provide the customer with a degree of reassurance, as where regular payments are being made the courts are highly unlikely to consider any application for a County Court Judgment (CCJ).

Drawing up a repayment agreement can be something of a balancing act. Things to consider include the amount of money outstanding, the customer’s ability to pay, and the specific circumstances which are creating difficulties with repayment. What you must also bear in mind however, is the ultimate goal of recovering the money owed to you in as short a time frame as possible.

Once you have agreed to accept a payment plan under terms both parties are comfortable with, it is a good idea to set these out clearly in writing along with the agreed repayment schedule, reminding your customer that if they renege on the agreement you will be left with no other alternative but to commence court proceedings without further notice.

Interest – credit agreements vs repayment agreements

A mutually agreed repayment schedule does not constitute a credit agreement. To arrange a credit agreement you must be authorised by the Financial Conduct Authority (FCA) to carry out regulated activities. It is very important that you do not fall foul of the rules where regulated activities are concerned – carrying out an unauthorised regulated activity is a criminal offence.

While businesses are permitted to charge a daily interest rate on their original unpaid bill, unless you are authorised by the FCA you are unable to charge interest as part of a repayment plan. This presents another advantage to your customer, because for as long as they stick to the agreed schedule any daily interest is effectively frozen.

The fact that a repayment agreement is not a credit agreement has no bearing on the terms you and your customer agree on. There is no reason why you would be prohibited from agreeing to accept more than four payments within a 12-month period, and nothing to stop you from settling on regular weekly or monthly instalments until the debt is paid in full.

About the author

Peter Stafford is Managing Director and Head of Business Services at Cartmell Shepherd Solicitors. He is also an associate director at the University of Cumbria.

Peter has over 27 years’ experience in managing large and complex legal disputes of all types.

He is a full member of ACTAPS (The Association of Contentious Trust and Probate Specialists) and leads a team of four solicitors at Cartmell Shepherd’s, who handle probate disputes involving wills, trusts, inheritance disputes, powers of attorney and issues relating to capacity.

Peter has been recognised by the Legal 500 (which provides an in-depth analysis of law firms and solicitors).

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