If a business cannot recover a debt from a customer after the normal credit control procedures are exhausted then it will need to consider taking further action to recover the sum due. Mediation with the debtor, involving negotiation through a third party, can be used to resolve the position but, if this fails, other measures are available. These may involve using debt collectors or starting court or insolvency proceedings.
We offer fixed fee services to recover your debts in a cost effective way whether through pre-action letters, court proceedings or statutory demands. We also advise of changes that can be incorporated into your standard terms and conditions to enable you to seek recovery from your customer of legal fees that you incur in chasing payment in addition to the basic outstanding debt.
Taking formal legal action is generally more cost-effective for larger debts. The ‘small claims track’ can be used for debts under £5,000. This is a relatively simple process and does not normally require legal representation at the hearing, although professional advice is useful regarding the preparation of evidence in a suitable form. Debts exceeding £5,000 are pursued in court with the procedure used depending on the size of the claim. The court issues a summons to the debtor. If the debtor does not respond, judgment in default can be obtained, which requires the debtor to make payment without the merits of the case being considered. If the debtor contests the claim, a request for summary judgment can be made so the court can decide if the debtor has any legal basis for refusing payment. If the debtor admits the debt, no court hearing is necessary and enforcement action can be taken.
It is also possible to start insolvency proceedings by issuing a statutory demand or, if the debtor is a company and the debt due exceeds £750, a winding-up petition. A winding-up petition is more commonly used where there are several creditors. This is generally more expensive, but faster, than court proceedings. Failure to pay a statutory demand within 21 days is sufficient basis for a petition for the bankruptcy of the debtor to be presented, but statutory demands are normally used to apply pressure on the debtor to pay the debt.
Choosing how to proceed with collecting a debt will depend on factors such as the size of the debt and the cost (financial and time) involved. If you are having difficulty in obtaining payment from a customer, it is best to seek professional advice on how to proceed with your claim, especially if it is contested.
If you would like further information on the debt collection services that we can offer to you, then please contact James Harvey.
