A Guide to Debt Recovery

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A Guide to Debt Recovery – Neale Crump, Solicitor

Most, if not all businesses, are likely to need to pursue an unpaid invoice at some time. Steps can be taken to minimise the risk of “invoice” becoming “invoices” and leading to large sums being written off as bad debt.

At the outset, when taking on business, ensure you have clear and legally binding contracts drawn up by a solicitor with your terms and conditions clearly displayed. Taking legal advice early can often give you the best chance to avoid problems later. Display your terms of business on your website and make them clear at the outset of a business relationship. Ensure contracts are properly signed and returned, retain duplicates and all correspondence.

Research new customers and carry out credit checks before entering into contracts. Consider references for larger contracts. Implement proper and effective accountancy systems and credit control procedures. Ensure payments can be clearly matched to invoices.

If a customer delays in payment or only provides part payment ensure management is aware immediately. Ensure you have a telephone contact to deal with accountancy or payment issues. Send invoices promptly and chase payment as soon as a debt is overdue by email, post and telephone.

Keep clear and accurate records, particularly in terms of orders/contracts, including email chains.

Have a system in place to deal quickly and effectively with any unpaid invoice or contractual issues before they get out of hand. If a dispute occurs and you need to take legal advice ensure you can give your solicitor quick clear and accurate instructions. This will reduce your management time, increase your chances of getting paid and likely reduce your legal bill.      

If the Debt Isn’t Paid & You Are Not Prepared to Write It Off

You may consider legal action to recover the sums owed. Prior to issuing legal proceedings, you must consider the Pre-action Protocol for debt claims.

In March 2017, the Ministry of Justice published the Pre-Action Protocol for Debt Claims (Debt Protocol), which came into force on 1 October 2017. The Debt Protocol applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader). The Debt Protocol does not apply to business-to-business debts unless the debtor is a sole trader.

In addition, check the contract to see if there is an obligation for requiring that the parties attempt negotiation or alternative dispute resolution. If not, it is worth considering whether, in any event, it may be appropriate to attempt to resolve the dispute by one or more of those methods.

A detailed letter before claim enclosing the contract, unpaid invoices and other relevant documentation is a good way to ensure you take steps to comply with the pre-action protocol and give the parties the chance to set out their case. An acknowledgement must be served in 14 days and a reply within 21 days of service. If no response has been provided to the letter before the claim, Legal proceedings can be issued after 30 days from the date of the letter.

Hopefully, this would conclude matters. If the debt remained unpaid you should discuss with your solicitor taking further steps. Careful consideration should be given before issuing legal proceedings, particularly in terms of the cost/benefit. The risk and potential legal costs. Consideration should be given to the debtor’s ability to pay any judgement and legal costs. A business relationship is unlikely to survive litigation.   

Legal Proceedings

If legal proceedings are issued, claims under £10,000 will fall into the small claims track. Only fixed costs are recoverable. Claims over £10,000 will be in the fast or multi-track depending on value and complexity. The court will fix a cost budget for these cases. Usually, the loser pays the winner’s costs (including their own) to be assessed by the court if not agreed.

The ultimate aim of a party bringing a money claim is to recover their money. Hopefully, the debtor will pay once a judgement is obtained. However, it is important to remember that obtaining a judgment or order is only the first step to getting what you are entitled to. A court will not automatically enforce any judgment or order. The onus is on the party with the benefit of the judgment or order to take enforcement steps.

A short summary of each method of enforcement is mentioned in the CPR Practice Direction (CPR PD) 70.1.1 to 70.1.2, and the various insolvency proceedings.

Should you require legal advice in connection with unpaid debt please contact Alex Jeffrey or Neale Crump on 01752 388883.