New debt recovery rules

Beware Of The New Debt Recovery Rules26th Sep 2017

by Eric Holt on 26th Sep 2017

Contact Eric Holt

New debt recovery rules

New rules coming into force on October 1 will make it longer and more difficult to recover unpaid debts.

In theory, the government wants to encourage debtors and creditors to reach agreement much sooner without having to go to court.

But it could make it easier for debtors to delay payment – and more time-consuming for creditors to claim back what’s rightfully theirs.

Will This Affect Me?

These wide-ranging changes will apply to any business (including sole traders and public organisations) claiming payment from an individual (including a sole trader).

They will not apply to B2B debts unless the debtor is a sole trader.

What’s Changing?

There is a new Pre-Action Protocol for Debt Claims. This sets out the legal process creditors must follow when pursuing debtors for unpaid monies.

At present, the creditor (or their debt recovery lawyer) sends the debtor a formal letter demanding payment within a set time (usually up to 14 days from the date of the letter).

From October 1 2017 that is changing:

  • The debtor has 30 days to reply to the letter, acknowledging receipt – but at this stage they won’t have to respond to any claims in detail.
  • The debtor will then have a further 14 days to respond to the creditor’s claims in the letter.
  • The creditor cannot start court proceedings until 30 days after the debtor has sent their initial reply.

And this is the problem. As a supplier you’re now looking at a minimum 90 days before you get paid:

  • 30 days (typically) that you’ve given the customer to pay
  • 30 days for them to reply to your letter before action
  • 30 days until you can take them to court.

If they fail to reply to your letter you can start court proceedings within 30 days. But that still means waiting 60 days before you can take them to court.

And as we all know, the longer it takes to get paid, the less likely you are to get your money!

So What’s The Solution?

Simple – take action faster.

In the past you would have sent a debtor a couple of gentle reminders...then perhaps a couple of firmer letters...then eventually resorted to legal action.

Now it’ll have to be a three-step process – gentle reminder, firm reminder, letter before action – or the whole thing will take too long and jeopardise your chances of recovering the unpaid debt.

That less patient approach risks alienating previously good customers who’ve just happened to hit a tricky patch. So you’ll need to manage their expectations and let them know this change is driven by Whitehall, not you.

Get Expert Help

Contact Coles Miller Debt Recovery Manager Eric Holt for more information about the new Pre-Action Protocol for Debt Claims, 01202 355695.

This document is not intended to constitute and should not be used as a substitute for legal advice on any specific matter. No liability for the accuracy of the content of this document, or the consequences of relying on it, is assumed by the author. If you seek further information, please contact Managing Partner Neil Andrews at Coles Miller Solicitors LLP.