Has it just become even harder to make individual debtors pay up?

One challenge that almost every business will face is that of customers or clients failing to pay invoices on time. Ensuring a healthy cash flow has become more vital than ever given the potential financial implications and uncertainty of Brexit.

However, if a business is to pursue its debtors, this must be done so in the correct way. If not, the process of debt recovery can become a lengthy and protracted process as the Courts have minimum standards as to how parties must exchange information prior to the commencement of proceedings. Those standards, in debt recovery claims, are about to get higher.

From 31 October 2017 a specific Protocol for debt recovery came into force. This Protocol places a heavier burden on a creditor, in terms of what steps they have to take before any dispute can be taken to Court, and it applies to all businesses seeking to enforce debts against an individual or sole trader.

An enhanced letter of claim must be served upon the debtor containing more detail than ever before regarding the dispute, alongside substantial supporting evidential and administrative documentation. A creditor must also be more proactive in terms of engaging with a debtor.

Debtors will have 30 days to reply to any initial letter of claim and are allowed a further 30 days before any Court proceedings can be commenced. These changes have the effect of increasing the time spent on a simple debt recovery and even more so if the initial letter of claim is not correct. This places a potentially disproportionate time and cost burden on a business chasing its debts in a timely manner. For example, think of a landlord who has to give his tenants 60 days after every missed rent payment before Court proceedings can be commenced.

Furthermore, if debt recovery against an individual is not pursued in the right way, the case may be put on hold by the Court or there may be adverse cost or interest awards against the creditor business.

Therefore, it is vital to get debt recovery right the first time, whether it be in restructuring your debt recovery process or issuing the initial letter of claim. Making demands for payment without legal advice will only make for a blunt weapon that is potentially unenforceable.

If you have any debts that require expert assistance, please contact a member of our Corporate Recovery team.