3 ways to prepare for the new Debt Pre-action Protocol (Quick 5 minute read)
On 1st October 2017 a new set of rules come into force for chasing debts from individuals. There will be a new procedure to follow before starting any legal proceedings.
This article offers practical tips and advice to help you prepare for the introduction of the Pre-action Protocol for Debt Claims.
You may think: this won’t affect my business as we only deal with commercial entities. Thankfully the new protocol rules stopped short of including debts owed by limited companies, PLCs and Limited Liability Partnerships, but debts owed by sole traders (including commercial debts) will be affected by the new protocol.
Major affect of the new protocol
The major effect of the new protocol will be to extend the time allowed between when a debtor makes a demand for payment and the point in which court proceedings can be issued. At the moment a demand can be made in as little as seven days before proceedings can start. Under the new protocol the minimum period from making demand to commencing proceedings is 30 days. It is expected that in most cases the time frame may be even longer. For example, if the debtor responds to the demand or dispute, chasing the sums will take a minimum of 60 days.
Given the considerable delays in processing claims within the court service, if proceedings are required the new protocol will add considerable time to what can already be a slow process. These delays could have serious implications, particularly for contractors and traders and anyone managing cash flow involving a complex supply chain.
What is the Debt Pre-action Protocol?
The new protocol will apply to anyone owed money from an individual; sole traders and public bodies are included. It will not apply to business-to-business debts unless the debtor is a sole trader. Debts which are covered by another Pre-action Protocol are not affected (such as construction and engineering).
The protocol aims to promote:
- early communication (including disclosing documents) and reasonable behaviour between parties involved
- resolution without court proceedings
- the agreement of a payment plan
- the efficient management of any necessary proceedings.
What will happen if we don’t comply?
- A delay in the collection of debts should court proceedings begin will be stopped by the court to address failures to observe the protocol.
- Cost sanctions will be imposed by the court on the claimant including the inability to claim costs.
- You will not be able to recover interest from the debtor.
3 ways to be prepared
Act now to prepare for the new Debt Pre-action Protocol.
- Adjust your credit control policy – offering less generous terms to individuals and start chasing debts from individuals sooner.
- Review your documentation – look at the terms of business offered to those affected by the new protocol.
- Update your processes – look into alternative methods of collecting debt from individuals.
We can help recover money owed to you
If you are facing a problem with cash flow or would like advice about updating your debt policies and procedures, please get in touch.
Our experienced team has a 98% success rate in recovering commercial debt and Alex, one of our specialists offers a free, no-obligation discussion about your situation. We can act straight way to recover money owed to you and a solicitor’s letter can cost as little as £10.