Your business has provided goods or services to a customer as promised, you’ve invoiced them, waited patiently for payment and even sent a couple of polite reminders when the payment became overdue. But, so far – nothing. Or perhaps you’ve received a refusal to pay on grounds you don’t believe are valid. How do you go about getting your money back?
You do have the option of making a claim yourself via the Government’s Money Claim Online service, if your claim is for a specific amount of less than £100,000. Or you could use a debt collection agency to handle the process on your behalf, though it’s worth bearing in mind that debt collection agencies do not have any legal powers beyond what you can do yourself, and will likely look to take a sizeable chunk of any debt they successfully recover.
If you decide you’d like some legal advice and support, Thrings’ highly experienced Debt Recovery Team can offer industry-leading guidance on how to obtain the best result for your business.
There are several key steps and processes to work through if you’re looking to recover outstanding debt.
Initial consideration of your claim
To begin with, we will make an initial assessment of your potential claim. We will review the documentation to see how much the unpaid invoice is for, when it was due, whether the contract is governed by English law and whether the contract contains any specific provisions requiring mediation or arbitration. If payment of the debt is being disputed, we will look in detail at the merits of the case in order to advise you whether we consider that a claim is worth pursuing.
If court action is the way forward, this must be undertaken within six years of the date of the invoice, unless the time limit has been reset by the receipt of an acknowledgement of debt from the debtor (the person or company who owes you the money). If the outstanding debt constitutes a ‘small claim’ (worth £10,000 or less), the court process is quicker and cheaper, but it is not usually possible to get more than a very limited amount of your legal costs back. If the debt is for more than £10,000, court fees are more expensive and the process is more complex, but if your claim is successful you can claim back a proportion of your legal costs.
Letter of claim
The next step in recovering your debt is to send a letter of claim, notifying the debtor that court proceedings may be brought against them and setting out a timescale within which they should respond. Courts take the view that litigation should be a last resort and parties are encouraged to try to resolve their disputes without going to court wherever possible.
A response from the debtor might open up the possibility of negotiation and they might make an offer to pay a proportion of the debt. If they either do not respond, or they respond disputing the debt, we can work with you to further review the strength of the case whether you wish to take the matter further.
Issuing proceedings
If you wish to continue with the claim, the next step is to issue proceedings by sending a claim form and particulars of claim to the court. Once the court provides a claim number, the documents would be served on the debtor, giving them 14 days to respond.
County Court Judgments (CCJs)
If no response is received from the debtor at this point, judgment against them can be entered in the form of a County Court Judgment (CCJ). This can be for the full amount owed plus court costs and interest. If the amount is paid within one calendar month, the CCJ is removed from the debtor’s record. If they do not, and the debt is paid at a later date, the CCJ can be marked as satisfied but would remain visible on the debtor’s credit rating, which could have a detrimental effect should they wish to borrow money in the future.
There are various methods of enforcement of a CCJ, if the debt remains unpaid.
- If the debtor is an individual, they could be required to attend court to provide evidence of what they can afford to pay and the court has the power to make an order to take money from their wages.
- If the money is owed by a business, a representative of the company can be asked to attend court and give details of the company’s accounts.
- The court can freeze money in the debtor’s bank, building society or business accounts and decide if money from the account can be used to pay the debt.
- The court can take a charge over the debtor’s land or property, requiring the debtor to pay this charge before they get their money if the land or property is sold.
- The court can send bailiffs to recover the money.
- You can apply to court to make a winding-up petition to close or ‘wind up’ the company, whereby the company’s assets would be sold and any surplus funds are paid to you and any other creditors.
Defence and Directions questionnaires
If the debtor responds notifying their intention to defend the claim, a further 14 days are allocated for them to file their defence. Both parties complete a directions questionnaire, giving the court various information about the logistics of the case, such as how much time they think is needed for the hearing and who they would like to use as witnesses. The court will set a timetable for the next steps to be followed, such as disclosing relevant documents and providing both witness and expert evidence. If both parties agree, a request can be made to pause the proceedings for one month in order to try to negotiate a solution.
Final hearing
If no agreement has been reached before this stage, a final hearing will be held at which a judge considers all the evidence, decides the outcome and makes an order, including for costs and interest.
Always try to reach agreement where possible
Don’t underestimate the impact on both you personally and your business in pursuing a disputed debt claim. You will need to take time away from running your business to provide detailed instructions at every stage, as well as to attend court. Any witnesses you call will also need to take time out of their working life to assist and to attend court. Attempting to reach resolution through mediation or other types of negotiation should be the first port of call whenever possible.
