On 1 October 2017, the new ‘Pre-Action Protocol for Debt Claims’ came into force. It only applies to businesses seeking to recover debts from individuals or sole traders. This new protocol will have a significant impact on all businesses seeking to recover debts.
The primary aim of the new protocol is to ensure that debtors have sufficient information and time to respond to claims before court proceedings are issued and to reduce the number of debt claims dealt with by the courts. A consequence of these aims however is the potential for delay in recovering legitimate debts due to a business.
Businesses will be alarmed at the timeframes now to be afforded to debtors. For example, a straightforward claim for an unpaid invoice will require a business creditor to wait at least 30 days for a response to its letter of claim before it can issue court proceedings.
Further, if the business creditor receives a reply from the debtor, it has to wait at least 30 days from the date it receives that reply before it can issue court proceedings. If the debtor requests further documentation, that period is extended to 30 days after the business provides the documents.
The consequence of the above is that an opportunistic debtor might use the new protocol to their advantage to significantly delay payment of a legitimate debt. A business might be forced to wait approximately 3 months before it can commence legal proceedings.
The new protocol makes the recovery of debt more onerous and costly for businesses. To assist cash flow, businesses will need to be more proactive and seek to recover debts as soon as they fall due. Businesses might also consider instructing external solicitors at an earlier stage to negate the longer recovery process and ensure compliance with the new protocol.
Fraser Brown’s specialist debt recovery department can assist with your collections. If you require further information regarding our debt recovery service, please contact Lloyd. Alternatively, you can call to speak to a one of our dispute resolution team on 0115 988 777.