Compulsory changes to debt collection for businesses

Dawn Lossau, Leathes Prior

From 1 October 2017 there will be a significant change to the way in which businesses have to deal with pursing debts owed to them by individuals and sole traders, which is likely to impact most businesses’ credit control procedures.

Please note: these changes are compulsory and very prescriptive.

If you are a business then these new procedures must be followed prior to issuing a debt claim against an individual or sole trader which in the case of any new debtcollector matters means that you either need to have complied with the protocol before passing a debtor to us for further action or we can look at assisting you with the protocol.  However, from 1 October 2017 onwards we will no longer be able to apply our very low cost debtcollector rates to claims against individuals or sole traders (see below), though the cost is still likely to be far less than most solicitors’ fees for similar claims.

In order to comply with the changes you must send the debtor a letter before claim along with a statement of account and a response pack (as prescribed by the Pre-Action Protocol for Debt Claims, which includes an information sheet and reply form, along with a financial statement form). The letter before claim will allow the debtor 30 days to pay or respond, whereas previously 14 days was the norm (and indeed that should remain the case for claims against larger businesses). The next step will depend upon the response received from the debtor, if any, though it is possible for the debtor to extend the process by up to 90 days, or in some circumstances even more. 

Failure on the part of the creditor to comply with the steps set out in the protocol may result in penalties such as costs orders or denying interest you have claimed, or the court could even stay proceedings pending further compliance and costs.

Broadly speaking, you have the following options if you wish to ensure compliance with the new protocol:

1.    You may be able to seek payment from all individuals and sole traders in advance (though for some industries that may be commercially unrealistic)

2.    You can instruct Leathes Prior to pursue the debtor in the usual way and we will follow the steps of the protocol on your behalf. Such claims will not be covered by the terms of our debtcollector service and the cost is likely to be a little higher than the cost prior to 1 October 2017. We are happy to provide a quote for our fees but, given the way the protocol operates, the initial cost is likely to be a little higher and the cost at the outset of pursuing a debtor is likely to be around £150 - £200 plus VAT (whereas prior to 1 October 2017 our initial fee was around £40 - £100 plus VAT), plus the usual debtcollector rates once proceedings have been issued (assuming no dispute arises).

3.    Alternatively, Leathes Prior can provide your business with the necessary training and resources required to instigate and comply with the new protocol before passing a debt to us to then issue legal proceedings. Please just give us a call on if we can help at all and we can provide a quote over the phone.

If you have any questions on any of the changes, or on debt collection in general, please get in touch with us on 01603 610911.

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