Contact Our Dispute Resolution Lawyers
If you need advice concerning a business debt dispute, such as if a customer is disputing a debt, our business debt recovery team can help. Contact our dispute resolution solicitors on:
If, as a business, you find yourself in a position where one of your customers is disputing a debt owed to you, there are a few steps you can take to try and recover the debt.
The evidence needed to pursue a claim
Before attempting to recover a business debt from a customer, you must first gather all of the evidence you have which shows that the debt is due and owing.
The easiest way to recover a debt is if you have a written and signed contract with your customer, which clearly shows both parties’ obligations.
For example, that you would supply goods or services to the debtor and what the debtor would pay for those goods or services.
However, you may have other documentary evidence, such as purchase orders, invoices or written correspondence which is evidence of how the debt has arisen.
Keeping copies of all correspondence and documents and your attempts to collect the debt or negotiate a settlement is important.
These will be required if your customer continues to dispute the debt and you instruct a solicitor to try and recover it for you.
Discuss the debt with your customer
Once you have gathered all of your evidence, the first step should be to try and resolve the dispute with the customer directly, whether through correspondence or at a meeting.
By discussing the situation with your customer, you can try and resolve any issues and reach an agreement with them.
Trying to resolve the dispute yourself before instructing solicitors to try and recover the outstanding debt will likely save you time and costs in the long run.
Sending a letter of demand
If your attempts to resolve the dispute fail, consider instructing a specialist debt recovery solicitor to help you try and recover the debt.
The first step the solicitor will take to try and recover a debt is to send your customer a letter of demand.
The letter of demand must contain the following details:
- The basis on which the claim is made;
- A summary of the facts;
- The amount of money you are seeking from your customer (including interest and costs where appropriate); and
- Copies of the documents you rely on in support of your debt claim.
The letter of demand should be posted to your customer, and it can also be sent by email if you have an email address for your customer.
Your customer has to be given a reasonable opportunity to respond to the letter of demand.
That is normally 14 days in a straightforward case but could be up to 3 months if the debt claim is complicated.
Settlement and ADR
Litigation should always be a last resort.
The Courts expect parties to consider whether negotiation or some other form of Alternative Dispute Resolution (ADR) might enable them to settle their dispute without commencing Court proceedings.
Even after commencing Court proceedings, the parties should continue to consider the possibility of trying to reach a settlement.
There are many forms of ADR, including:
- Mediation is where an independent third-party mediator helps the parties facilitate a resolution.
- Arbitration, where an independent third party decides the dispute.
- Early neutral evaluation, where an independent third party (usually a judge, retired judge, or experienced barrister) can give an informed decision on the dispute (i.e. give an indication of what the Court’s decision would be at any trial or final hearing).
- Ombudsman schemes.
Issuing court proceedings
If, after following the steps above, your customer fails to make payment of the debt, then unless you are prepared to write off the debt, you will likely need to instruct your solicitor to issue Court proceedings to try and recover the debt owing.
To issue Court proceedings, your solicitor must draft a Claim Form and Particulars of Claim.
These documents need to set out:
- The names and addresses of the relevant parties (i.e. you and your customer);
- The value of the claim;
- Details as to how the debt has arisen; and
- Any interest and costs which are being claimed.
A Court fee is payable to issue Court proceedings, and the amount payable depends on the value of the claim.
Once the Court proceedings have been issued and served on your customer, your customer is given 14 days to respond to the Court proceedings.
The next steps after that will depend on whether your customer responds to the Court proceedings and, if so, whether your customer admits or disputes your debt claim.
Costs
It is unusual to recover all of your costs from your customer.
The amount of recoverable costs will depend on how your customer responds to the claim, whether you have to issue Court proceedings to try and recover the debt and whether it is possible to resolve the dispute before any trial or final hearing.
If your claim can be resolved before the issuing of Court proceedings, it is unlikely you will recover the costs you have incurred unless you are entitled to contractual or statutory costs and interest from your customer.
If Court proceedings are issued, and your customer either admits the debt or does not respond to the proceedings, then you will normally only recover limited fixed costs plus any Court fees which you have paid.
However, if your customer disputes the Court proceedings and the claim goes all the way to trial, and you are successful at trial, the Court is likely to order your customer to pay usually between 60% and 70% of your costs.
Conversely, if you are unsuccessful in your claim against your customer, you will likely be ordered to pay between 60% and 70% of your customer’s costs of defending the Court proceedings.
Please note, for claims worth less than £10,000, the Court’s small claims system deals with these.
This means that even if you are successful in your claim against your customer, you will only recover limited fixed costs and any Court fees paid.