Debt recovery takes away from crucial time you could invest in your business, or your day-to-day duties. Chasing debts can be a frustrating and time-consuming process.
With corporate legal support you can recover debts owed to you more quickly and cost-effectively, giving you the time back you need to run your business and carry out essential daily tasks. We provide tailored, practical advice aligned with your needs designed to keep your debt recovery costs low.
In this detailed guide, we explore the debt recovery processes in the UK, aimed at educating businesses and individuals about their rights and options when attempting to recover unpaid debts.
The guide will cover the legal steps involved, practical advice, and the importance of seeking professional legal assistance for debt recovery needs.
We’ve written this for:
Business owners
Financial managers
Private individuals
What is debt recovery?
Debt recovery is the process of collecting unpaid debts owed to businesses or individuals. Creditors will attempt to collect unpaid debt from those that have borrowed money from them, known as debtors.
The process can involve negotiation, careful communication and often the support of legal expertise to recover money.
Third parties such as collection services and debt recovery solicitors can be hired to take on the role and effort of collecting the money.
Different types of debt that can be recovered:
Consumer
Commercial
Asset based finance
Debt purchase
There are some legal frameworks governing debt recovery in the UK to be aware of. The Late Payment of Commercial Debts (Interest) Act 1998) is a prominent piece of legislation in the debt recovery space. It enables businesses to charge business customers interest and a fixed administration fee for late payment and claim compensation.
The act applies to commercial contracts after November 1st 1998. The act only applies to businesses, professionals and public bodies are exempt.
The late payment must be for goods and services. Money, land and shares are exempt, as are business debts and employment and security contracts.
Debt can be recovered through County Court or High Court proceedings.
Pre-legal debt recovery steps
When looking to recover debt there are some important steps to take before initiating legal action.
Before starting any form of legal action, it is always advisable to open a dialog with the other party. Informal contact should be made, focusing on transparent communication that takes into account the other party’s circumstances. It’s important to avoid emotional language, rather state the facts and your position, including your intention to take legal action if necessary. With clear communication, it may be possible to recover a debt that the other side wasn’t aware of, or thought had been previously settled.
You may then enter into a period of negotiation with the other party to attempt to agree on repayment terms. If a dispute arises during this process, informal mediation, a form of alternative dispute resolution (ADR) may be attempted. Mediation is an informal process overseen by a mediator, a neutral third party. Mediators aim to help disputing parties reach a mutually acceptable agreement. They are only allowed to make suggestions to facilitate negotiation, not make orders or give advice.
If all else fails, and you have tried open communication, negotiation and mediation, then legal action is next logical step.
Before beginning legal action, you are required to send a letter before action. This is a formal letter that is sent to a debtor requesting payment or stating that you plan on taking legal action against them for unpaid debts. It should set out what they owe your business and provide a period in which to pay – before legal action will begin – usually 7 days.
Legal debt recovery process
When using a process to recover a debt, there are various steps to take. To issue a court claim, you will need to send a letter before claim to give the business or individual a deadline to pay the debt.
If this does not result in the debt being paid, in the first instance, you should intiate a County Court claim.
Court action in the County Court can secure a County Court Judgement (CCJ), this is an order to pay money.
When a CCJ is obtained, enforcement action can be taken against the debtor if they persist in not paying their debt. Our solicitors can help you obtain a CCJ and ensure any follow up enforcement action takes place.
We can file a claim on your behalf digitally. The debtor will be sent a court form which requires them to pay the debt and interest accrued within 14 days of receipt. When the Late Payment of Commercial Debts (Interest) Act 1998 applies compensation of £40-£100 per invoice is added to the value of the claim.
Obtaining a County Court Judgment (CCJ)
There are various steps to obtain a CCJ.
Follow these steps:
File a CCJ at the County Court, by yourself or with the guidance of a solicitor. You will need to pay the relevant court fee
Wait for the CCJ to be issued and sent to the defendant. They are given 14 days to respond to the court
If the defendant doesn’t pay or dispute the CCJ you can take enforcement action
If they pay the CCJ in full, you can apply for a Certificate of Satisfaction or Cancellation with form N443
A CCJ confirms that the debtor has defaulted on payment. This is the court’s final decision, it gives you power to take enforcement action to collect the debt. This is why it’s so attractive to creditors. A CCJ is recorded on the debtor’s credit file, which affects their future ability to obtain credit.
Enforcement of a CCJ
We’ve mentioned the enforcement of a CCJ. Let’s explain the common forms of enforcement to ensure debtors pay what they owe.
Warrant of control – involves using bailiffs to collect the debt. You can ask the County Court to issue a warrant if the amount you are asking the enforcement agents to collect is more than £5,000. The exception to this amount is if you’re enforcing an agreement under the Consumer Credit Act 1974. With a warrant of control court enforcement agents can take goods from a defendant’s business or home or collect the money you’re owed
Attachment of earnings order – is an order to a debtor’s employer to pay what they owe directly from their salary. Some of their wages will be diverted to the court which will distribute this to you to repay the debtor’s debts. This order can be given after the CCJ is obtained to enforce it
Charging orders – are a legal provision to secure a debt against a property. They apply to CCJs obtained before 2012, where a debtor has missed a payment
Writ of control – allows you to utilise High Court Enforcement Officers (HCEOs) for the seizure of the debtor’s assets to settle their debt. This method is also known as ‘execution against goods’
Alternative debt recovery methods
Other debt recovery methods are commonly used by businesses looking to recover money they’re owed.
Company voluntary arrangements
Company voluntary arrangements (CVAs) allow insolvent companies to pay creditors over a fixed term. If creditors agree to the arrangement, debtors can continue trading.
Insolvency practitioners determine an arrangement that covers the amount of debt a debtor owes and a payment schedule they can repay it across. They need to do this within a month of being appointed.
They write to creditors about the arrangement and ask if they approve it. A CVA is approved when 75%, by debt value, of the creditors agree.
Insolvency proceedings
If a debtor cannot pay their debts, a creditor can initiate bankruptcy for individuals or winding up petitions for businesses as debt recovery tools. When they are approved, the debtor’s assets may be used to repay the debt.
Third-party debt orders
Allow creditors to recover debts directly from a third party who owes them money by freezing a debtor’s assets.
Typically, the debtor’s money is held in a bank account. The order obliges the third party to pay money owed to a creditor by a debtor.
International debt recovery
When attempting to recover money from overseas debtors, there are several challenges and legal considerations to be aware of.
Challenges include the language barrier between businesses or individuals who don’t speak the same native tongue. Also, understanding cultural differences and how they relate to communication styles, debts and negotiation is crucial.
There also may be different legal and regulatory hurdles to jump in different jurisdictions.
These can be overcome by a solicitor with extensive overseas legal contacts. Our network of international debt recovery solicitors has contacts with solicitors around the world, this gives us the ability to collect debts across the world.
The United Nations Convention on the Assignment of Receivables 2001, facilitates cross border debt recovery.
It offers insolvency protection and protects creditor’s and debtor’s rights during insolvency.
Cost and time considerations in debt recovery
When considering legal assistance in debt recovery, there are different legal costs to account for. Let’s break them down.
If you choose to have a solicitor represent you, their fees will need to be paid. At Lawhive, we charge fixed fees so you’ll know how much you’ll need to spend at the outset. Your solicitor may be able to recover your legal costs from the debtor if you’re successful in your case.
The timeframe of debt recovery can be tricky to estimate. It depends on the complexity of the case, the size of the debt and where your debtor is located. It could take anywhere from a few months to a few years.
It’s also crucial to balance cost-effectiveness with successful outcomes. If the amount you are owed is relatively low compared to the cost of pursuing legal action it may be prudent to write off the debt. This is especially advisable when the costs of legal action outweighs what you will recover.
When to seek legal assistance
A legal intervention is necessary when you have contacted the other side and received no response or they have denied the existence of the debt, and you have attempted negotiation and mediation.
Using a debt recovery solicitor means tapping into the expertise of a professional who understands the legal frameworks and rights in place for creditors and how to get a quick and cost-effective resolution through the courts.
Our solicitors can help you enforce a judgement when your debtors still won’t pay, despite a legal judgement and order.
What happens if a debtor can’t pay?
If a debtor can’t pay a debt, you may be forced to initiate bankruptcy if they are an individual or launch a winding up petition if they are a business.
What’s the difference between a debt recovery agency and a solicitor?
Debt recovery agents represent firms that only get involved in the collection of debts. On the other hand, solicitors offer legal expertise and a tailored approach to collecting debts.
Solicitors can be more expensive than debt collection agencies, however, debt recovery solicitors are skilled negotiators who can quickly reach a settlement with debtors, which can save businesses time.
What are my options if the debtor is insolvent?
If a debtor is insolvent you can apply to bankrupt them to attempt to get your money back.
If you’re trying to get money back from an insolvent company not in liquidation, you can apply to wind the company up.
Legal services for debt recovery
Debt recovery solicitors can help you save time and recover the money owed to you more quickly.
So, the earlier you act the more quickly you can be repaid.
If you would like to discuss your case and receive expert debt recovery guidance, contact us today.