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Does your business need to collect a debt? Here’s how to go about it

Written by Amanda Hamilton on Monday, 10 January 2022. Posted in Commercial law, Financial management, Cash flow, Legal, Finance

Juggling finances and trying to call in debts is a struggle for businesses, especially in light of recent events.

Does your business need to collect a debt? Here’s how to go about it

Juggling finances and trying to call in debts is a struggle for businesses, especially in light of recent events. Most importantly, chasing someone who owes money and who is having difficulties can seem heartless. On the other hand, if you’re a sole trader or SME, you may also be struggling and need to survive. 

The first step is to give as much notice as possible to the other party that you are owed this money and to ask for payment. There is a ‘pre-action protocol’ that you must do before any court proceedings are commenced, which is otherwise referred to as a ‘letter before action’, which must state who you are and why you are asking for the debt to be paid. You must put all the relevant details in a letter and include any evidence.

The letter should also give the other party a timeframe to respond. The letter should also make it clear that you are open to discussion, but that if you have not had a response by the chosen date, then you may decide to commence legal proceedings without further notice.

This is where it gets serious. You should never threaten legal proceedings unless you are intent on carrying that through. Therefore, you shouldn’t mention this lightly unless you are seriously willing to proceed. You should also always ensure you have sufficient evidence and reason for taking court action before you commence a claim.

Starting court proceedings can be done online if it’s a straightforward small claim without complications. And online fees to do so are slightly less than sending in paper versions. The fees go on a sliding scale dependent on how much is owed. 

The claim form should be completed and usually, once stamped by the court, a copy gets sent to the other party, a copy is kept by the court, and you get the third copy. The court usually sends the issued claim form to the other party (the defendant) with a response pack containing documents and information on the options that the defendant can choose. However, whatever the defendant decides to do, they must contact the court within 14 days, failing which, you may have the right to get a default judgment against them.

It’s worth noting, that even if you do win a judgment and the court agrees they owe you the money and must pay it, that doesn’t automatically mean you will receive it. You may need to enforce the judgment and this can require additional time, money and court paperwork. 

So, before you start… ask yourself if this debt is really worth the time and energy required to collect it, if you stand a good chance of receiving the money and if you are genuinely willing to take it all the way to the courts. If the answer to any of the above is ‘no’, then, frustrating as it may be, it may be better to write off the debt and move on. 

About the Author

Amanda Hamilton

Amanda Hamilton

Amanda Hamilton is Chief Executive of the National Association of Licensed Paralegals (NALP), a non-profit Membership Body and the only Paralegal body that is recognised as an awarding organisation by Ofqual (the regulator of qualifications in England). Through its Centres, accredited recognised professional paralegal qualifications are offered for a career as a paralegal professional. 

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