Debt Collection - get ahead of the game

Late invoices are an annoying and detrimental reality for most businesses. Persistent non-payment is not only inconvenient but can also result in serious cash flow issues for the creditor concerned.

It is too often the case that creditors are simply put to the back of the queue, unless formal demands are made to apply pressure on the debtor.

Presently, the law surrounding simple debt claims enables a creditor to commence court proceedings shortly after a letter before action has been served, with a recommendation that a 14-day period is deemed reasonable.  A longer period applies to more detailed and complex cases.

From 1st October 2017, a new Pre-Action Debt Protocol comes in to effect. This will apply to businesses who are seeking to recover debts from individuals.  For the avoidance of any doubt, this will include sole traders who are seeking to recover an outstanding debt from an individual, or another sole trader.

The requirement for clearly particularised letters before action remains. However, on 1st October 2017, the letter must now provide additional information and a minimum fixed 30-day period in which to respond. Following receipt of the debtor’s response a further 30-day period is provided before proceedings can be commenced.

Relevant documents being referred to must also be disclosed.  Failure to do so, will result in a savvy debtor putting in specific requests for disclosure towards the end of a 30-day period, to prolong the 30 day-period. Tactically, this could temporarily enable you to be placed at the back of the queue again.

Currently, if matters are not satisfactorily resolved following your letter before action, no further notice period is required before issuing a claim. However, from October 2017, you will be required to provide an additional 14-day notice period (unless exceptional circumstances apply) before issuing a claim. Resulting in a further two-week delay in the process.

The effect of this change will substantially impact on the timings of the pre-action process, typically resulting in a minimum of 60 days before any further action can be taken.  The requirements to front load information, together with fixed timeframes will inevitably result in additional time, resources and cost to you. 

Where applicable, the new requirements will make seeking to wind-up a debtor’s business a more desirable option, due to the reduced time restraints, publicity and pressure associated with the insolvency route.

Non-compliance with pre-action protocols is not only likely to attract criticism but may result in the court awarding cost sanctions, or providing additional time to rectify breaches. 

Now is the time to review your bad debts and get ahead of the changes, particularly if you are already experiencing cash flow issues and getting exacerbated by ongoing delays that relate to either an individual or sole trader.

Friday Legal Solicitors, the leading business focused law firm in North Northamptonshire, have an experienced team of Commercial Litigators and Solicitors who are adept with dealing with all debt recoveries for all sizes of businesses. Please contact Hayley Mauro on 01536 218888, or email at hayley.mauro@fridaylegal.com should you require any assistance.