Most, if not all, businesses, regardless of the sector in which they operate, are likely to need to pursue an unpaid debt at some time. For most businesses, it is critical that the collection of outstanding debts is managed efficiently to assist cash flow.
In our previous blog which discussed how to recover a debt from a limited company, we set out that if another company has ignored your emails and telephone calls to pay outstanding debt, the first step is normally to send a letter of claim to the debtor in accordance with the Practice Direction on Pre-Action Conduct and Protocols which is contained in the Civil Procedure Rules (CPR). Please check our previous blog for details of what the letter of claim must contain and what the debt recovery process is after a letter of claim has been sent.
It is important to issue a letter of claim before commencing court proceedings, and this is for the following reasons.
Issuing a formal letter of claim before commencing court proceedings can provide an opportunity to save time and money. For most business owners, dealing with court proceedings is a costly and time-consuming process that takes you away from what is most important, running your business. Instructing a debt recovery solicitor to recover the debt on your behalf leaves you to carry on with your business, knowing that someone else is assisting you with collecting your outstanding debts.
If the debt owing to your business is less than £10,000, then it will be dealt with by the Court’s small claims system meaning that in most cases, even if you are successful in the Court proceedings, you will not recover your legal fees save for very limited fixed costs and any Court fees paid.
Furthermore, even in the swiftest of Court proceedings, it can take a matter of months to obtain Judgment from the Court, particularly if the Court proceedings are defended. Therefore, from a commercial perspective, if a debt recovery matter can be resolved sooner rather than later and without the Court’s involvement, there are likely to be substantial time and costs benefits.
Finally, a letter of claim is the start of a more formal process in which to resolve an outstanding debt issue, especially if the debtor has not taken your requests for payment seriously. A formal letter of claim which provides the debtor with a deadline to respond is likely to focus the debtor’s mind on resolving the issue.
Alternatively, if there are genuine reasons why the debtor has not paid the outstanding debt, the debtor is likely to set those out in response to the letter of claim, which may allow for discussions to commence with a view to resolving the issue(s) that have arisen and payment of the debt being made.
It is our experience that sending a letter of claim to a debtor will prompt the debtor to take action and make payment. A letter of claim from a firm of solicitors threatening formal legal action to collect an outstanding debt is rarely ignored.
Another benefit to sending a letter of claim is to ensure that you have complied with the Court’s rules as contained in the CPR.
The Practice Direction on Pre-Action Conduct and Protocols requires companies who want to recover their outstanding debts to send a letter of claim before commencing any court proceedings.
There is a strong emphasis on parties resolving their disputes without recourse to the Court. Failure to send a letter of claim before commencing Court proceedings may result in the Court either staying the Court proceedings (i.e. putting them on hold) so that the parties can comply with the Practice Direction and/or depriving the claimant of costs even if its claim is ultimately successful.
If you would like further information about how we can help your company recover its business debts, please do not hesitate to contact a member of our Corporate Debt Recovery Team on 0161 941 4000 or email the Corporate Debt Recovery Team.