Advice to Businesses on Chasing Debts

In todays climate, an efficient and structured internal credit control procedure is a vital part of any business. Late payment is a persistent problem for UK businesses and can result in serious cash flow problems, falling profits and ultimately affect the liquidity of a business.

It is crucial to act quickly if a customer does not pay and there are essentially two ways forward for a creditor. Either a Claim Form can be issued at the Court or a Statutory Demand can be served, followed by the issue of a Bankruptcy or Winding Up Petition.

Issuing a Claim Form

Before a Claim Form is issued, a formal letter before action must be sent. A deadline for payment or response should be imposed and it should also state that in default, legal proceedings will be commenced which will include a claim for Court fees, costs and interest. Interest can be claimed under the Late Payment of Commercial Debts (Interest) Act 1998 - the Government introduced this legislation to encourage businesses to pay on time by giving the right to claim interest if bills are paid late. However, the statutory right to claim interest is not compulsory and it is up to the creditor to decide whether or not to claim interest.

It is important to establish the correct identity of the debtor before proceedings are issued as there can be time and cost implications if the wrong party is stated on the Claim Form. Unless the customer (the defendant) pays the amount claimed in full or defends the action, a County Court Judgment can be obtained.

Securing a County Court Judgment is one thing but obtaining payment from the defendant is another matter. There are various ways to enforce payment of a Judgment debt but success will largely depend on what information is known about the defendant, what the defendant"s current circumstances are and whether the defendant is a company or an individual.

The main methods are:

  • Attendance by the County Court Bailiff or High Court Enforcement Officer.
  • Charging Order, which secures the Judgment debt upon the defendant"s property.
  • Attachment of Earnings, which orders money to be stopped from an individual defendant"s wages to pay the debt.
  • Third Party Debt Order. This method is an order of the Court that freezes money held by a person, organisation or institution, such as a bank or building society, which might otherwise by paid to the defendant.

The general rule is that all Court fees, costs and interest claimed are payable by the defendant if the claimant makes a successful recovery.

Serving a Statutory Demand

A Statutory Demand is a formal demand for payment pursuant to the terms of the Insolvency Act 1986. If the debtor does not comply with or contest the demand within 21 days, the debtor is deemed unable to pay the debt and therefore the creditor would then be entitled to commence Winding Up proceedings (corporate) or Bankruptcy proceedings (individual).

Accordingly, due to the possible consequences in the event of non-payment this is seen as a much more effective method of recovering payment, despite the fact that the demand is not supposed to be used as a debt recovery tool.

However, the reality is that it is used and to good effect by many creditors.

To proceed with a Statutory Demand the debt must be over £750.

To conclude, it is important to remember that a successful recovery cannot be guaranteed on any matter. However, further action is also used by businesses to send out a clear message to other customers that steps will be taken if necessary.

If you would like further information on Debt Recovery please contact Kax Chana on 0115 9471 517 or email kchana@fraserbrown.com

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