Jan 3, 2021

Debt Recovery – a Step-by-Step guide

Does your business suffer from bad debts? Hopefully, it’s a rare occurrence. However, with the probability of a serious pandemic-induced recession looming, cash flow is likely to become an increasingly dominant feature of business life. As pressure on turnover rows, it will be more important than ever to keep a healthy flow of cash coming into your business. A major barrier to this is slow payers.

In this blog, we look at the three steps you can take to recover those debts quickly, cheaply and with the minimum of unpleasantness.

 

Step 1 – Letter Before Action

Let’s begin with the good news. Over 80% of debts are paid following the receipt of a letter. Yes – it’s as simple as that. Send out a formal letter called a Letter Before Action (LBA) that

(a)    requests payment of the debt and

(b)   warns of the imminent issue of a court claim

You’ll find that, more often than not, payment is forthcoming. Your LBA sets out clearly what you are owed and gives a time period for payment – usually seven days. Not only do such LBAs usually work, but they’re also an essential part of the debt recovery process. Fail to send on before starting court proceedings, and you may well incur costs.

The only exception to issuing an LBA is if your claim is against an individual or a sole trader. In these cases, you have to follow a different route, aimed at keeping cordial and informative channels of information open. In this way, the two parties get a clear understanding of each other’s positions and are more likely to come to an agreement without court involvement.

Find out more about LBAs and debt collection protocol. Call us on 0116 265 1538 or send us an email.

 

Step 2 – When, having received the LBA, your debtor still hasn’t paid

Usually, the most appropriate next course of action is to issue legal proceedings through the County Court. Your debtor will receive an order from the Court, demanding that they pay the debt, plus interest and costs within 14 days. In certain cases, you’ll be entitled to add an invoice for compensation of between £40 and £100 per invoice owed to you.

We’ll handle the entire process on your behalf, efficiently and quickly. We don’t just automatically process your claim. We carefully check your claim to make sure everything is as it should be.

Obtaining a County Court Judgment (CCJ) is simply gaining legal confirmation that the debt is owed to you. It’s a court decision that gives you the power to take enforcement action to collect the debt. Such CCJs are also recorded against the debtor’s credit record affecting their ability to obtain credit.

Find out more about obtaining a County Court Judgement (CCJ). Call us on 0116 265 1538 or send us an email.

 

Step 3 – Enforcing the CCJ and collecting the debt

Once a County Court Judgment (CCJ) has been entered against your debtor, you can then immediately enforce that Judgment, using one of many collection methods. It all depends on the circumstances of each individual case. 

High Court Enforcement Officers - HCEO
For debts between £600 and £25,000. These are used for most County Court Judgments (CCJs). The HCEO is employed by a private company licensed by the Court. They will turn up at your debtor’s address and will use their legal powers to collect the debt on your behalf.

Bailiffs
A County Court Bailiff can enforce debts under £600. However, they are employed directly by the Court and not necessarily incentivised to collect the debt. They will often only make visits during office hours, whereas a High Court Enforcement Officer is more flexible.

Third Party Debt Order
This is a way of legally enforcing a County Court Judgment (CCJ) by obtaining payment from a third party that owes money to your debtor. You might use this approach if you know your debtor’s bank account details or are aware of a large contract that your debtor might be carrying out.

Attachment of earnings
This is where your debtor is an employed individual. You can arrange for an Order to be made which results in a proportion of the debtor’s salary being deducted by their employer each month or week until the debt is paid.

A Charging Order
This is a charge against any property your debtor owns. This method is rarely effective, as you only recover the debt once the property is either sold or re-mortgaged.

An Information Order
This is a Court Order that requires the debtor to attend Court for questioning. It can be used to enable you to make a more informed decision on which enforcement method to use. At the appointment, your debtor has the opportunity to offer payment proposals.

Refusal to attend Court means the debtor ca be held in contempt of Court and committed to prison for a short period.

Winding Up proceedings
This can be issued against a Company id the amount owed is more than £750. The Court gives a date for a Court hearing. The petition is then served upon the debtor company and freezes the debtor’s bank account.

Bankruptcy Proceedings
This is only an option when the debt is worth more than £5,000.
The first step is to issue a Statutory Demand and gives the debtor 21 days to pay.
If the debt is not paid (and no application is made by the debtor to set it aside) then the next step is to issue a bankruptcy petition to the Court.

Dealing with debtors – we’re here to help

We have considerable expertise in debt recovery. We’re always happy to advise on the most appropriate method of prevention, collection and enforcement. Get in touch. We’re always here to help.

Find out more. Call us on 0116 473 6133 or send us an email.

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