Understanding Business Debt Collection Procedures
Debt collection is a process in which an individual or an organisation recovers a debt owed to it. When all of the standard credit control actions have failed to recover the debt owed, formal debt collection is usually the next step.
When carrying out debt collection, there is a process that must be followed. This process varies depending on whether the debt owed is a business-to-business debt or a business to consumer debt. This article will go through the process for both of these types.
Business to Business Debt
When dealing with a business-to-business debt, the first stage in recovering this debt will be for your solicitor to draft and send what is known as a Letter before Action. This letter will outline all of the relevant details to the debtor and advise that unless the debt is settled, then court proceedings will be undertaken.
Once the letter has been sent to the debtor, they will be given a period of 14 days to respond and settle the debt. If this letter is not responded to by the debtor enclosing clear arrangements for the payment of the debt or the debtor simply fails to pay the debt within the 14-day time frame, the next step will be to issue court proceedings.
Court Proceedings
Whilst undertaking proceedings for debt collection, your solicitor will complete a Claim Form with your instructions. This form will include all the relevant details of the debt. In turn, the Debtor will complete a response pack. This pack includes forms that will allow the debtor to respond to the claim made against them.
If the debtor does not respond to the claim and fails to file a defence within 14 days, you are then able to seek judgement against the debtor. If a response is filed by the debtor, a hearing will be necessary in order to resolve matters before any judgment is issued.
Once the judgement is received, it can be enforced against the debtor. There are several types of enforcement action to try and secure payment of the debt, they can include:
- Arrangement of payment by instalments
- Applying for a Charging Order against property
- Seeking a Third-Party debt order
- Bankruptcy/winding up processes
Business to Consumer Debt
When dealing with a business to consumer debt, a Letter of Claim must be sent before any court proceedings can be undertaken. The difference with this letter is that it must include the information and documentation contained in the pre-action protocol for debt claims.
In these cases, the debtor has a 30-day period to respond to the Letter of Claim. The recovery process outlined above can then be commenced if the debtor fails to give a response.
If there is a response from the debtor, they should use the standard Reply Form that will be enclosed with the Letter of Claim. The debtor is also entitled to request any documents they believe are applicable and court proceedings should not be commenced less than 30 days from receipt of the completed Reply Form, or 30 days from providing the documents the debtor has requested. A reasonable period of time must also be provided to the debtor if they have informed you that they are seeking legal advice.
It must be noted that before the issue is escalated to the courts, seeking Alternative Dispute Resolution is encouraged as this will save time and costs for each party. However, if an agreement is reached and then subsequently breached by the debtor, the recovery process must be started from the beginning before court proceedings can be undertaken.
Conclusion
Debt recovery must follow a strict process in order to give you the strongest chance of recovering the debt owed to you. If this process is not followed correctly prior to issuing court proceedings, your claim will be likely to fail, and the debt will remain outstanding.
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