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Debt Recovery FAQs
We hope these frequently asked questions and their answers provide you with a greater insight into the world of debt recovery. Should need arise we hope these FAQS provide you with reassurance as to the depth of knowledge and experience we will bring to bear should you require assistance in the collection of any outstanding debts, or associated credit control issues.
Should I pursue an unpaid debt?
Each case should be judged on its merits. Do your due diligence first to establish if you have a reasonable chance of making a recovery to justify the time and effort incurred in the process.
Be pragmatic – “small” debts, on a scale of your choosing, could be simply written off. Take into account however the fact that this approach may encourage poor payment behaviour among other debtors.
If the sums involved are large always make contact to establish if there are any underlying issues which can be resolved. Communication and the flow of information are key in securing a recovery – even if this may mean agreeing a repayment plan, or re-scheduling of the debt. (Within any plan consider agreeing to interest being applied to the debt and a sum representing your time engaged in the recovery process).
Remember in the event a debtor has become insolvent, your prospects of a recovery can be poor. There are a number of free resources on the internet you can use to assist you in determining whether you may be throwing good money after bad, in the debt recovery process.
Are other options open to you? For instance, if you have sold goods to a customer which remain unpaid for, do your terms and conditions of business contain a valid retention of title clause, allowing you to claw back the goods, if not the money itself?
Will pursuing a customer or client mean that I lose them for good?
Like a puppy in training, errant customers should be treated firmly yet fairly. Initially always be diplomatic in your approach. Communication is essential when trying to resolve the question of non-payment. Set out how you would have to reluctantly escalate matters and implement more formal recovery measures in the absence of a resolution. Keep an eye to the medium term – always explain the step you intend to take to recover the debt, in advance of any legal proceedings being commenced. This will constitute good evidence (if needed) that you have acted reasonably at all time and that litigation was a “last resort”, rather than the first. Always follow up any communications in writing to establish that chain of evidence.
Ask yourself the question – do I want to keep this customer/client anyway if they are a bad payer? Your time and effort may be best spent on existing or future clients who appreciate your firm payment policies, rather than trying to keep bad payers in line?
Quite often it can help having a third party such as specialist solicitors on the record as acting for you - as this can create a degree of personal separation and remove the potential for any individuals’ embarrassment.
How robust can I be when seeking to recover an unpaid debt?
As before each case should be considered on its merits. How keen is the client/customer to continue working with you? Would they want to ruin that relationship and incur all of the practical difficulties in building relationships elsewhere?
Make sure you have all your ducks lined up in a row. When were your terms and conditions of business reviewed? If matters need to be litigated, have strong terms of business in place backed up with an equally strong paper trail to advance your position. Estimates/Quotations / Purchase Orders / Applications for Payment/Invoices will all provide strong evidence of their liability. Invest in having these documents in place and updated every 3-5 years or so to enhance your prospects of a recovery.
Place a ‘value’ of your customer/client being involved in litigation which may involve them in adverse publicity. County Court judgments and insolvency petitions are made available to Credit Reference Agencies and will impact on their ability to obtain future credit or goods. Don’t be afraid to take advantage of those risks that can be imposed on your debtor.
Are interest and costs recoverable from my debtor?
Your Terms of Business or the contract may already make provision for the right to charge interest on any overdue account and possibly too the application of reasonable charges should you need to invoke recovery measures.
There is also a statutory right to seek interest and costs compensation if the outstanding debts are commercial (business to business) and not due from a consumer. The Late Payment of Commercial Debts (Interest) Act 1998 enables you to apply interest. (where no written terms exist), at the Bank of England base rate plus 8%. This runs from the end of a notional 30-day credit period.
The legislation also allows specified amounts for 'reasonable debt recovery costs' calculated on a sliding scale. £40 for debts less than £1,000, £70 for debts less than £10,000 and finally £100 for debts in excess of £10,000. If recovered such costs and interest, make the debt recovery exercise more cost effective for you.
It is good practice, to ensure that your intention to rely on the protections afforded under the Late Payment legislation is flagged up to customers/clients in your Terms of Business, Quotations, Estimates and on your Invoices.
Cut and paste this phrase:
"We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms". (www.payontime.co.uk)
Does it make sense to retain specialist debt recovery solicitors?
You won’t be surprised to read that we have to declare an interest here! “Yes” is the answer in the majority of instances. Using specialist solicitors can be a cost effective way of recovering debts. We are no different to any other sector. Would you service your own car, or conduct your own dentistry? Like any other business decision do your due diligence and ‘interview’ potential candidates to act for you. Trust your instincts – do they sound engaging and knowledgeable? Review the testimonials on their web site or consider online reviews etc. Are their charging structures transparent and reasonable?
If you feel comfortable speaking to them, it is likely that they will adopt the same approach to your errant customers. You may have a better chance of keeping the customer, if your solicitor is able to impress on them the need to resolve any dispute amicably and secure payment without the necessity of issuing court proceedings.
How much does a debt recovery solicitor charge?
Specialist firm of solicitors involved in debt collection (ourselves included) may well operate to a formula that largely boils down to “no recovery, no charges” As ever you need to read the small print as a number of factors come into play. Please see our pricing page for further details.
Specialist firms operating to these types of formula indicate that they have invested in the IT systems needed to bring down the costs of handling debts, as well as demonstrating a confidence in their own ability to make the recovery exercise work for their clients and themselves.
What steps are open to me before engaging in the Debt Recovery process?
Invite your potential Debt Recovery solicitors to review your existing credit control procedures. They may be able to offer a diagnostic review of those measures and implement practical steps, to accelerate and enhance the prospects of your invoices being paid.
Your solicitors can become part of your credit control process whereby they will release customised credit control letters to your clients at weekly, monthly or quarterly intervals to secure payment. Often this can be done at low cost, being priced per letter or at a fixed fee.
Think about the personalities at the business who are indebted to you. Is there an individual who would react to ensure payment were released? E.g. the Finance Director, rather than “Barry in accounts” On a similar theme if it will not damage the relationship consider making a high level approach - Managing Director to Managing Director, as the certain level of embarrassment this will entail will yield results.
In simple terms do not overlook that the prospects of recovering a debt decrease with each day that passes. Time is of the essence therefor and in the event you are met with resistance or apathy it may well be time to consider contacting a solicitor.
What evidence of the debt will I need?
In a perfect world a written and signed contract will be available. If not, it will still help to show that the debtor was aware of your terms and had proceeded to instruct you. It may be possible to demonstrate that the contract had been affirmed by “custom and practice” especially if the disputed debt followed a series of earlier transactions running to your contract terms. Other documentary evidence may be helpful and have been created including Quotations, estimates, purchase orders, signed delivery notes and invoices etc. Hold on to any emails confirming that payment is to be remitted to you and in the same vein, always follow up any verbal assurances of payment by email, as they will provide helpful contemporaneous evidence that the debt is not disputed and was to be discharged.
Before embarking in litigation your solicitors will evaluate the quality of your evidence before taking court action, and tailor their approach to the debtor on a case by case basis.
What approach should I adopt if the debtor disputes liability?
As ever each case should be looked at on its merit in conjunction with your solicitors if the debt is disputed. There may be a genuine misunderstanding that can be resolved. For example, if it is denied any goods sold were ever delivered, but you are able to produce a signed delivery note the debtor should reconsider its position. Likewise, if there have been issues with the performance of your contractual responsibilities that can be documented, you may have to consider the question of compromise.
It is far better to establish any issues before legal costs and fees are incurred as it may still be possible to negotiate acceptable terms to settle the “dispute”. You have to factor in the time, energy and costs that would otherwise be expended in the litigation process in dealing with the dispute, as against identifying what may be a genuine dispute and seeking to resolve it.
Even if such settlement discussions fail but you can demonstrate that you negotiated in good faith and tried to reach a reasonable agreement, this should hold you in good stead if the dispute does proceed to court action.
Who is my debtor and does that have any implications?
It may pay dividends to consider what your debtor base looks like and tailor your approach to how they trade. For instance, ‘Sole traders’ are personally liable for their debts. Accordingly, their personal assets are at risk from an enforcement perspective, even if their business itself may be in financial difficulties. This is compared to smaller ‘Limited liability’ companies whose Directors may knowingly hide behind the protection that limited company status affords them in their individual capacity.
Individual debtors and smaller businesses are statistically more likely to have cash flow issues from time to time, which is a consideration when determining how much resource to throw at any litigation steps to recover the debt. Obtaining a judgment can be relatively straightforward – enforcing that may be less so.
‘Big business’ can employ different tactics themselves – threatening to withdraw their future custom or expressing a readiness to defend matters to the hilt just because they have deeper pockets than you.
In general terms however larger organisations, including when dealing with the Public sector, it is more likely that there has been a breakdown in communications within that organisation and nothing sinister is behind their apparent failure to make payment.
In conjunction with your solicitors each set of circumstances can be considered on its merits. Do your due diligence, investigate the debtor's ability to pay; employ good, early communication with the debtor and collate the necessary evidence to ensure you have a solid case. If needed be prepared to negotiate settlement agreements when required, rather than going to court. It may not feel like “justice”, but you have to put a value on your time, energy and the costs involved in chasing after what may be a lost cause.
If legal action is required where will the proceedings take place?
Overwhelmingly monetary claims will be dealt with in the County Court Money Claims Centre (“CCMCC”) or County Court Business Centre (“CCBC”). For larger claims of £100,000 or more, matters will be pursued in the High Court.
Hopefully the debt will not become defended allowing for a judgment to be obtained quite quickly, enabling you to proceed to enforcement, in the absence of payment.
If the debt claim becomes defended then the matter will be allocated to one of three “tracks” For debts up to £10,000, the claim is allocated to the 'small claims track'. This is a relatively simple, less formal and inexpensive procedure for resolving disputes in the county court. It additionally entails a ‘free’ mediation appointment with a court official seeking to secure a settlement before trial costs are incurred.
Larger disputed claims between £10,001 and £25,000 are dealt with in the County Court under the 'fast track' procedure. Finally, for claims for over £25,000 the 'multi-track' procedure will be employed and which can also be issued in the High Court. These latter “tracks” involve more formal and complex procedures which as a consequence can incur significant legal costs expenses.
Will a court claim take a long time to conclude and what are the likely costs?
If a court claim is uncontested, you may apply for judgment 2 weeks after the court claim is served on the debtor. Conversely If the debtor indicates an intention to defend the claim it is afforded a 28-day period from the date of deemed service in which to file a defence. Again should they fail to jump that hurdle, you may apply to enter judgment for the principal sums, fixed court costs, court fees and interest.
If a defence is filed within the permitted time, the action will be allocated to one of the three “tracks”. Ordinarily Small Claims trials (normally of 2-3 hours in length) are listed within in about 6 months of the defence being filed.
In “fast track” disputes for claims in excess of £10,000, the process will take longer. A 'fast track' case may take at least 30 weeks or more to go to trial. This is as compared to as much as two years or more before a multi-track case is heard. (Regrettably these periods are likely to be extended until the Court Service are abler to clear through the significant backlog of cases built up through the 2020 – 2021 pandemic restrictions).
Similarly, costs will increase the longer the process. They will become higher still if the claim cannot be settled and proceeds to a full trial. We are obligated to advise you of the costs implications and estimates as the action progresses. We will provide you with advice as regards those costs and how they feed into your tactics and litigation strategy. Intervening events beyond your control are a factor as estimates are constructed on the basis the defendant will comply with the procedural directions, rather than trying to drag matters out unnecessarily.
Although you can claim “reasonable” or even “indemnity” legal costs if successful, you will have to pay your own costs as the action proceeds. If you win the claim, the losing party is ordered to pay around 75% of your reasonable legal costs on the “standard” basis, or more rarely, all of your costs if awarded on an “indemnity basis”. Any shortfall in costs would have to ultimately be borne by you.
If you were to lose the claim, you would both have to bear your own legal costs in full and those of the winning party’s costs as per the previous paragraph.
As a consequence, although it may not constitute ‘justice’, there can be much sense in seeking to “buy a certainty of outcome” by endeavouring to compromise your claim at a fairly early stage. We can guide you through that negotiation process.
I’ve won my claim – what next?
Hopefully when obtaining judgment at an early stage under the “default” process, or subsequently at trial, the defendant will comply with the order and discharge the judgment, or at least make and stick to satisfactory repayment proposals. If the defendant fails to discharge the award, or any repayment payments, the onus is upon you to enforce Judgment through the court. There are a number of enforcement mechanisms available, which will incur further court fees and fixed costs of the process. Those court fees and costs are invariably added to the Judgment and as such are recoverable from the Defendant on the successful enforcement of the judgment.
The Government has a helpful website setting out the primary enforcement tools available to you.
We will decide together the best options available to you in each case and advise on the cost implications and timings involved.
The “nuclear deterrent” of the enforcement world is to consider the application of Insolvency procedures, by making an individual Bankrupt, or seeking to place a company into Liquidation. That can be a high risk strategy as you are likely to rank as an unsecured creditor in the event an order is made. You may subsequently only receive a few pence in the pound owed to you, if the debtor’s assets are modest and outweighed by debts owed. Conversely it can compel your defendant to place you to the top of the “payment queue” if they wish to avoid the impact of such Insolvency proceedings. As before we will advise you as appropriate if the insolvency option is one you would wish to consider.
What are my Judgment Enforcement options?
The best method will depend on the defendant's legal status (eg whether an individual or a company) and its financial circumstances. We will be happy to advise you on the most appropriate course of action on a case by case basis. If needs be it is also possible to ask the court to order the defendant to attend court to provide information on their assets and ability to pay, which will inform your decision as to which weapon to employ.
Judgment enforcement options include the following:
Warrant / Writ of Control
Court enforcement agents have authority to take goods from the defendant’s home or business. Enforcement agents will try to either to collect the money you are owed, or take goods to sell at auction.
The County Court bailiff is empowered to enforce Warrants up to a judgment value of £5000, whilst the High Court counterparts, “High Court Enforcement Officers“, are able to enforce judgments of over £650 in value obtained inthe County Court, or any High Court judgment.
In our considerable experience although the High Court Enforcement Officer may charge higher fees (ordinarily repayable by the Debtor) they are far more effective – as they are working in the private sector and secure their income in large part only if they succeed.
Third Party Debt Order
Monies held by a third party to the credit of the judgment debtor (often a bank or a building society), can be “frozen” and diverted to you in satisfaction of the debt. This also applies to sums held by your debtor’s customers if they owe the Debtor money.
A good weapon to have in your armoury, as the monies are frozen before the Defendants will be made aware of the fact. On the down side it can be a “toss of a coin” if it works, as the order only bites if sums are held to the credit of the debtor at the point the order is served.
Attachment of Earnings Orders
The defendant’s employer can be ordered to take a means tested amount from the defendant’s earnings each pay day and send it to a collection office for repayment to you. (An order cannot be made if the defendant is unemployed or self-employed).
This can have advantages if it is made known to the defendant that you intend to utilise this method. It may cause the defendant embarrassment in the workplace, or potentially impair their career prospect. As such it may provoke voluntary payments rather than having to involved the employer.
You can obtain a charge over the defendant’s interest in land, property or securities (shares) to prevent their sale.
This is a really good option to use, as it means you become a “secured creditor”, rather than remaining “unsecured”. That may result in you avoiding the risks of the debtor being made bankrupt, or placed into a liquidation, under which you may otherwise only receive a few pence in the pound owed to you.
If the judgment is over the sum of £5,000 or has been registered in the High Court, it will also continue to attract interest (at the current statutory rate of 8% per annum – or pursuant to contract).
You can leave your charge in place until the property is voluntarily sold or re-mortgaged – at which point the charge will be redeemed.
In the case of shares any dividends payable under them are payable to you to offset the debt sums owed.
Ultimately you may apply to Court for an Order for Sale of the premises, land or securities – subject to there being sufficient sale proceeds available to discharge the debt, interest and associated legal costs and fees of the exercise.
This is an extremely powerful tool to have at your disposal as the defendant will often want to avoid the threat of their home being sold and will consequently sell the premises or re-mortgage voluntarily to retain control of their primary asset.
Order to obtain information from a person who owes you money.
If you have limited knowledge of a debtor’s financial circumstances this application has its merits. The Defendant will have to attend court and complete a comprehensive questionnaire (on oath) as to their means and assets. Although it is not an enforcement tool, the mere fact that the defendant has to engage in the process may coerce payment or satisfactory repayment proposals.
Alternatively, the information secured will better inform you as to which of the other enforcement methods will enhance your prospects of a successful recovery.
Finally, although the process can be a little long winded if the defendant fails to engage in the application a defendant can be committed to prison for their contempt of court!
Contact our debt recovery solicitors
We would welcome the opportunity to assist you. Please do not hesitate to contact Graeme Weir, a Consultant within the Litigation Department via email@example.com or via his direct dial telephone number 01233 648406 for a free chat to discuss your requirements.
For more information please call us on 01233 624545