If you are seeking the repayment of an unpaid business debt, there are certain steps you need to follow in order to comply with legal and regulatory requirements. In this article, we outline the nature of those steps, ensuring everything you need to know about business debt recovery is here for you, all in one place. So read on for our ‘Civil Litigation: Business Debt Recovery – A Step By Step Guide’.
In the first instance, you should contact your debtor to notify them of the outstanding payment if it is more than 7 days overdue. Sometimes, the receipt of a firmly worded (but not rude or aggressive) reminder letter, email or telephone call can prompt the debtor to take action to settle the outstanding amount.
In the message you send, you can ask them if there is a reason behind the non-payment. You should also make them aware that under the terms of the Late Payment of Commercial Debts (Interest) Act 1998, they will be liable to pay interest on the debt of 8% over the Bank of England base rate, as well as a late payment fee ranging from £40 to £100 (depending on the amount owed).
You will want to tread carefully at this stage as it’s likely you’ll not want to do anything to jeopardise your business relationship with the debtor. There may, after all, be extenuating circumstances that are preventing them from paying you.
If no response or settlement is forthcoming after 14 days, it’s time to launch the formal debt collection process. Doing things by the book will make it far more likely that your business will receive the money it is owed.
The first step in the process is to carry out background checks into your debtor’s business. Getting a credit report and checking information via the Companies House website can reveal information about the financial status of your debtor and the likelihood of them being able to repay you.
Also known as a Letter Before Claim, this does exactly what it says on the tin (or page in this case). It informs your debtor that you plan to take the matter further and sets a deadline by which the debt must be settled or legal action will commence.
If your debtor is a sole trader, you must give them 30 days to pay, as stipulated in the Pre-Action Protocols laid out in the Civil Procedure Rules. For all other types of business, the repayment deadline should be set at 14 days.
Your letter should outline the amount of money that is owed and the reason why it is owed. The tone of the letter should be polite and firm. It’s a good idea to give the debtor an option of payment methods they can use. But it’s just as vital to keep the letter as short and to the point as possible, and to send it by recorded delivery while keeping a copy for your files.
In as many as 80% of cases, a well written LBA produces the right result, jolting the debtor into settling up, rather than face the daunting prospect of legal proceedings. LBAs sent with a solicitor’s letterhead often have the greatest impact.
You can also offer your debtor the chance to pay you via a fixed payment plan, which is especially useful if they are experiencing cashflow problems. Such a payment plan will give them breathing space and the chance to settle-up in instalments, rather than via a lump sum. You can give them anything between 5 and 52 weeks to pay you back, depending on their financial situation and your business needs.
If no response is forthcoming from your LBA, or you cannot agree a payment plan, the next step to take is legal action which should begin on the day after the deadline you stipulated in the LBA.
The fees associated with submitting a court action is something your debtor will have to pay if you win your court case or succeed in getting a County Court Judgement (CCJ). The amount will be added to their debt along with legal costs.
That’s unless your debtor goes into administration, in which case you’ll need to pay the fees. The amount payable depends on the size of the debt you are looking to recover. Small debts under £300 will attract a £35 fee, while for big claims between £10,000 and £200,000 the fee is 5% of the value of the claim.
Getting a claim issued by the court to the debtor usually takes at least 4 weeks, but you should allow up to 2 months. The debtor will have 14 days to respond to the claim. If they offer no defence to your claim, you’ll receive a CCJ. If they dispute your claim, the court will let you know of the next steps, which could mean you’ll get a date for your court hearing.
The court will look closely at evidence from both sides and make a judgment based on the balance of probabilities. If their ruling goes in your favour, your debtor will be formally ordered to settle the outstanding amount.
A CCJ does not guarantee you will get your money from your debtor. You must take enforcement action to secure what’s owed to you if it is not paid.
This action can take the form of instructing bailiffs to seize your debtor’s assets such as their car. These court bailiffs are also entitled to enter your debtor’s premises, by force if necessary.
Having the amount owed deducted from your debtor’s wages is also an option and known as an Attachment of Earnings Order. Another path to getting paid is applying for a Charging Order which will restrict the debtor from selling any of their property until the debt is settled. You can also submit a bankruptcy order or apply for compulsory liquidation.
The expert civil litigators here at Wayman & Long can help you with any and every step of the business debt recovery process.
From conducting background checks into debtors, to writing LBAs that get results, and handling all the complexities of a court case, we’ll provide the precise amount of legal support and expertise you require to get you the best result.
To find out more, contact us today by phoning 01787 277375 or use the contact form on our website.
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