Receiving payment for goods and services provided is fundamental to keep a business running. However, the vast majority of businesses have or will face problems with non-paying customers or clients. With the average consumer debt per household in the UK being £7,311.00 (as at March 2017), it is becoming increasingly important to get invoices paid on time.
If your business is unfortunate enough to suffer from unpaid debts, you must have systems in place to ensure that action is taken against the debtors.
Where do I start?
Make an appointment with a solicitor.
Your solicitor will be able to advise you on whether the debt can be pursued, and indeed whether it is worth pursuing.
In terms of whether you can pursue the claim, generally, you will have 6 years from the date the debt becomes due to take action and issue a claim against the debtor.
The more information you know about the debtor, the better. This will assist your solicitor in assessing the debtor’s ability to pay the debt. There is little point obtaining a judgment against someone who does not have the means to pay it.
The solicitor will also advise whether it is cost effective to pursue the debtor. Whether you can recover your legal costs from the debtor will depend on how much the claim is worth.
Can I sue them immediately?
Over 3000 Consumer County Court Judgments (CCJs) are issued on average every day. However, the court encourages parties to try to resolve matters before they reach that stage, and has set out a general procedure to be followed before any proceedings are issued. You (or your solicitor) should send a letter before action to the debtor beforehand, setting out what is owed and why, and enclosing copies of relevant documents.
If the debtor does respond to your letter, the Court encourages parties to try to settle matters before reaching court. Ways of doing this include negotiation or mediation. We look at this in more detail in this article.
If you do not correspond with the debtor prior to issuing proceedings, the court could make costs orders or other sanctions against you.
If the debtor does not respond to your letter within a reasonable period of time (or if you are not able to settle the matter), a claim can then be issued against the debtor for the unpaid debt.
Pre-Action Protocol for Debt Claims – October 2017
In October 2017, a Pre-Action Protocol specifically for debt matters is due to come into effect. This protocol is aimed at businesses who have debts owed by individuals or sole traders. It will give much more specific instructions about what should be included in an initial letter, and how parties should behave prior to issuing proceedings.
Under the new protocol, the debtor should complete a form, confirming whether he agrees that the debt is owed. He should also provide a full income and expenditure form. This should assist the parties in negotiating a payment plan.
I have obtained a CCJ and my debtor has still not paid, what can I do?
The CCJ itself will give a timescale by which the debtor should pay the debt. If he does not, you may need to enforce the judgment. There are a number of ways to do this, which we look at in more detail here.
If your business is suffering with unpaid debts and you would like advice on how to get paid, our specialist debt recovery team can help. Call us today on 0800 988 7756.