What next after I have exhausted my credit control procedure?
More frequently, we are receiving enquiries regarding debts and invoices owed to sole traders and businesses that are not being paid. What is there for a business to do when polite chasing and credit control options have been exhausted? At this point it is time to consider your legal options. This short briefing indicates how a solicitor can add value to dealing with a troublesome debtor.
The first question to ask is, what are my options?
The two most common methods of recovering a debt owed are to issue a statutory demand, or a letter before action. A statutory demand is a formal demand for payment within 21 days. If the debtor does not pay the amount due, insolvency proceedings can be initiated. The threat of insolvency can provide a very real incentive to some individuals or companies and can result in settlement or open the door to repayment plans. A letter before action is once again a formal demand for payment however the effect of non-payment in this scenario is that court proceedings for a money judgment can be issued to recover the debt.
Which method may be the most suitable for your situation depends on a number of factors. You must consider: who is your debtor? How much is the outstanding debt? Does the debtor have assets, a company or a means to pay the sums due?
When deciding which method is the most suitable there are also other considerations to think about regarding the formality and likely outcome of a statutory demand or letter before action. Both have certain formalities that must be complied with, such as allowing the debtor certain time limits to pay and complying with any relevant pre-action protocol so that court proceedings may be brought. In the case of statutory demands, whether the debt is large enough to warrant a demand and whether the debtor has enough assets to pay the demand; if bankruptcy proceedings are issued, you will rank as an unsecured creditor meaning that all secured debts will be paid in priority to yours and you may not recover all, or indeed any, of the amount owed.
Once you have decided on the method you will use, the debt recovery process can begin, however there may still be outstanding hurdles to cross such as:
- What if the debtor is located overseas? This can involve consideration of jurisdiction clauses in contracts, service of proceedings and enforcement of any judgment or order, if necessary, in another jurisdiction.
- What if there is no written contract between yourself and the debtor, can you still issue proceedings to recover the debt owed? The simple answer is yes, but there will then be other issues to consider such as the time when the debt becomes payable and therefore when proceedings can be issued, whether interest can accumulate and at what rate. The absence of a contract may also give rise to disputes over the obligations of the parties, which could in turn be used to dispute the debt. A statutory demand would not then be available.
- What interest you can charge, over what period and whether you are entitled to fixed compensation in addition to interest on account of the invoice not being paid.
- Can I recover my costs? Court proceedings can be extremely costly and with the introduction of the fixed costs regime in 2023 for civil litigation, keeping costs proportionate is an important consideration at all times when pursuing a debt through litigation. It is important to note that it is unlikely that you will be able to recover pre-action costs should your matter be resolved before any court proceedings are issued and even where proceedings are issued, the amount you might be entitled to recover from the debtor may be fixed, and if not fixed is unlikely to amount to 100% of the solicitors’ fees you incur.
These considerations and issues are all reasons why it is important to have a solicitor involved as soon as possible if your credit control efforts have proved fruitless and are seeking a more formal resolution.
Our private and commercial litigation team have extensive experience of pursuing debts for individuals and businesses and taking enforcement action to recover judgment debts ranging in value from thousands to millions of pounds. Our involvement in complex contract disputes provides a solid foundation for pursuing disputed debts. We can provide tailored advice and options in respect of the value and nature of the debt outstanding, and will advance the best legal arguments whilst ensuring your commercial needs are focused.
If your credit control team requires assistance with pursuing a debt, please contact Cathy Harris or her team to discuss how we can assist you further.
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