New rules on debt recovery may delay payment of consumer debts
New rules on the procedure businesses must follow when trying to collect debts from individual customers could mean that you have to wait 90 days or more before you can issue court proceedings. To limit the damage this may cause to your cash flow it is important to review your credit control procedures following the introduction of the rules on 1 October 2017.
Mark Parnall, director with Parnalls in Launceston explains what you need to know.
Are all business debts affected?
Only debts owed to you by individuals are covered by the new rules; however, sole traders are included within the definition of an individual so they are also relevant for some business debts.
What do the rules require?
The rules – set out in the pre-action protocol for debt claims issued under the Civil Procedure Rules 1998 – require you to engage with individual debtors to establish why the debt has not been paid and whether it is because it is disputed. The aim is to try to resolve the matter without the need to go to court or alternatively, if this cannot be avoided, to at least narrow down the points in dispute and agree to try to deal with it in as cost-effective manner as possible.
As the creditor, you are required to write to your customer to confirm how much is owed, including any interest or other charges which have accrued on the debt. You also need to confirm whether the debt is owed under an oral or written contract and the ways in which the debt can be paid. If an offer to pay by instalments has already been made by the debtor, but is unacceptable to you, you need to explain why.
The letter of claim must be accompanied by two specific forms: one to enable the debtor to reply and one for them to set out details of their financial circumstances.
You need to state the date of the letter clearly towards the top of the first page, and ensure that it is posted to the debtor on the same day or, if this is not practicable, the day immediately after. Alternative methods of service (such as via email) are permitted but only if the debtor has expressly agreed to them.
If no reply is received within 30 days of the date of the letter you are free to issue proceedings. However, if a reply is received – but which is not sufficient to enable you to understand why the debt has not been paid or how your customer proposes to deal with it – the onus is on you to engage with them to find out what is going on.
If the customer replies, but tells you that they intend to take advice on their position, you have to allow them a reasonable amount of time (a minimum of 30 days) to take that advice. Further time will have to be given where debt advice cannot be reasonably obtained within the initial period allowed.
If the debtor requests copies of any documents you hold to help them assess their position, these must be provided promptly and in any event within 30 days of the request.
If the proposed solution offered by your customer is repayment of the debt in instalments, you have to consider the proposal (afresh, if you have already refused it) and, if it is (or remains) unacceptable to you, you need to explain why this is.
If you cannot agree a way forward via correspondence, consideration should be given to whether a form of dispute resolution outside of court might be appropriate. For example, negotiation via solicitors or the appointment of an independent mediator.
In any event, you must give your customer at least 14 days prior warning of your intention to begin a claim at court. This is unless the time limit for bringing a claim (usually six years from the date the debt fell due for payment) is about to expire.
Failure to follow the rules could result in:
- any proceedings you issue at court being halted (stayed) until you do comply with the rules;
- you being deprived of your legal costs (even if you win) or being ordered to pay your customers costs; or
- you being denied an award of interest.
Is there anything I can do to avoid being caught by the rules?
There are some limited situations in which the rules do not apply – for example, if your debt can be classed as a business-to-business debt or if there are other rules governing the contract between you and your customer, such as the pre-action protocol on construction and engineering disputes or the protocol on mortgage arrears. The protocol will not apply to debts owed to HMRC for unpaid tax.
Where the debt rules do apply, you will need to comply with them but you can limit the impact they will have on your business by having robust credit control procedures in place which ensure debts are picked up early and the correct process for dealing with them followed. You need to become familiar with the information that needs to be included in the formal letter you are required to send and the forms that need to accompany it. You also need to make a note of the relevant time limits and ensure you stick to them. To do this you should revise all template letters and forms and update your credit control procedures.
If court proceedings look likely, you should seek legal advice at an early stage to ensure that alternative dispute resolution options have been explored and your position fully protected. This is particularly important where it is possible the debt may be disputed.
For advice on your credit control procedures, or for business disputes more generally, please contact Mark Parnall on 01566 772375 or email email@example.com
KATHERINE FLASHMAN KITSON CELEBRATING 25 YEARS AS A DIRECTOR OF PARNALLS
Do you know the difference between…
When to consider appointing a professional attorney
Should I get a cohabitation agreement?
The Need for Updating Wills
The Right to Make Noise
Ill-health pension transfer not liable for IHT
Legal Time Limits - why so important?
Would you pay a premium for a south-facing garden?
Video-witnessed wills to be made legal
New Planning Relaxation Is Not the Whole Storey
How to minimise delays in obtaining Grant of Probate
Could you benefit from the Green Homes Grant?
A SHOCK TO THE SYSTEM: new electrical safety regulations for residential tenancies
Property of Cornish residents who die without a will goes to Prince Charles
Does your lawyer progress your accident claim efficiently and provide you with a personal and professional service? Can i change solicitors for my accident claim?
What effect could the new changes to stamp duty have on property sales?
Preparing to sell your Launceston property
Staying safer in video meetings
Making Sure Your Great New Home Comes With Clean Air
Property Market Re-Opens in England
Coronavirus: Wills and Powers of Attorney FAQ
Medical Care Received Not Up to Scratch?
Had an Accident in Someone's Home?
Accident or Injury Involving a Dog?
Social Distancing No Obstacle for Parnall's Mobile Document Signing Team
Coronavirus (COVID-19) and Commercial Property Legal FAQs
Rent Charge Suspensions: Protecting Your Interests
Been Asked to Sign an Employment Settlement Agreement? Seek Advice Urgently...
Services Update: Continuity of Legal Service Provision
Advising You in Uncertain Times
Could carelessness on social media land you in court?
Is an electronic signature on a commercial property document acceptable?
What happens when there is no health & care LPA in place
Social Media Training for Businesses
Information to gather for your probate solicitor
Gazundering, what it is and how to avoid it
Relief from forfeiture – what happens if the tenant forgets to pay the rent?
Not so safe at work - compensation for an accident at work
New organ donation law: giving you control
Running a business from home
Have nude photos of you or your teenager been posted online?
Landowners’ rights and the Electronic Communications Code
Building in your back garden
Christmas is a time for giving (and inheritance planning)
Buying the freehold of your leasehold house
Redeveloping an empty pub for commercial use
Why it takes time to obtain the Grant of Probate
Social Media: The unconscious privacy threat
Is your reputation being threatened?
Making a will after your spouse or partner has died
Interns celebrate completion of internship at solicitors
Selling your home in a flat market, some top tips
Claiming compensation for a serious road traffic accident
New Media and Communications Court list reflects surge in internet defamation claims by Laura Baglow
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.