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From 1st October 2017, businesses seeking to recover debts from individuals are subject to the new ‘Pre-Action Protocol for Debt Claims’. Failing to follow the Protocol, or getting it wrong, may prove to be an expensive mistake.
The Protocol introduces prescribed documentation that must be sent by business suppliers to debtors who are individuals, as well as extended time limits for debtors to respond to claims. Whilst it does not apply to business-to-business debts, it does apply to individuals who are trading as businesses.
Non-compliance with the substance of the Protocol will be considered by the court when it gives directions about how the case will be managed. This gives wide-ranging powers to judges which might include calling business owners and directors to court to explain to the judge why the Protocol has been ignored and also may involve costs penalties being imposed, claims for interest being disallowed, etc.
• The impact of the Protocol on your business will depend, to an extent, on the profile of your debt book. If most debtors tend to pay in response to a Letter of Claim, then some may now seek extra seek time to pay once they have considered the rubric which accompanies the new Protocol Letter of Claim.
• If your debt book typically takes time to convert into cash, then cash flow may worsen if uncooperative debtors spin out longer the time before you could start legal proceedings, potentially up to 74 days.
• You should deploy credit checks before accepting valuable business from individuals (including sole traders).
• In appropriate cases you may wish to obtain third party personal guarantees, possibly backed by security, before accepting large orders.
• Take the opportunity now to consider drafting new (or revising existing) Standard Terms and Conditions.
• Bear in mind that any attempts to by-pass the new Protocol are likely to be penalised.
Harrowells offer a cost-effective fixed-fee debt recovery service which is compliant with the Protocol yet pro-active in recovering debts for business clients. Interest and compensation, as well as costs, are added to the debt in appropriate circumstances.
We will ensure that you comply with the Protocol and, unlike most debt recovery agencies, if debts are contested, then these can be referred to our Litigation team which is recognised by Legal 500 as being a leader in the Yorkshire region.
We can also draft, revise and tailor to your needs Standard Terms and Conditions.
Contact Richard Hugill, our Litigation Partner, to learn about how we can help you.
Our articles are intended for general information purposes only and are not a substitute for professional advice tailored to your specific circumstances. We are always very happy to discuss any plans, issues or concerns you may have and to clarify how we might be able to help. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
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