Business debts owing? Changes you need to know about.

On 1 October 2017 businesses will be subject to legal changes which will govern how they can use the Courts to recover their debts from individuals and sole traders. Ahead of time, we are encouraging businesses to look at both their internal processes and outstanding debt to look for the best way to recover their money at the lowest possible cost. Julian Wintle, our new Head of Litigation, explains all you need to know to make the right decision for your business.

The changes

The biggest change is that on 1 October 2017, a Pre-Action Protocol will come into force that will mean that businesses have to follow a given set of rules to claim money back through the Courts. These protocols are not optional and must be used to prevent you being restricted in what you can claim back.

The positive point about the Pre-Action Protocol is that it aims to encourage disputes about money to be settled before you reach the stage of issuing a claim at Court. The downside is that complying with them is technical work and you may find that you need legal advice to ensure that you have done all that you are obliged. Failure to follow the Pre-Action Protocol could stall the proceedings and lead to higher overall costs in the end and restrict your ability to claim interest from your debtor. Therefore, we highly recommend seeking legal advice before you start to claim against an individual or sole trader on or after 1^st October 2017

What you need to know about the Pre-Action Protocol

These are summarised as follows:

1. The Protocol applies to any business (including sole traders) claiming payment of a debt from an individual. This includes a sole trader;
2. To start the Pre-Action Protocol process, the creditor needs to draft a Letter before Claim. This should contain ‘prescribed information’.  Prescribed information includes
   1. the amount of the debt and interest;
   2. details of the formation of the contract;
   3. why any offer to pay has been rejected; and
   4. how payment can be made;
3. The letter of claim should be accompanied by a statement of account or similar, a prescribed Information Sheet, Reply Form and Standard Financial Statement (income and expenditure form);
4. Any documents or information requested by the debtor to help clarify or resolve issues in dispute should be provided within 30 days;
5. A reasonable period must be allowed for the debtor to obtain debt advice, if requested.
6. The debtor will have 30 days to reply to letter before claim.  Court proceedings shouldn’t be started before this period of time expires.  Depending on the debtor’s response to the letter before claim, further extensions to the 30 days may apply. Further advice should be sought on whether or not you need to provide any extension of time to avoid breaching the Pre-Action Protocol;

The Protocol cannot be used in cases where the dispute is about something other than a claim to pay a debt. For example, if the debt arises out of a construction dispute or a claim for professional negligence, different protocols applies to those subjects.  You should consider seeking legal advice to help navigate the technicalities of the various protocols.

 How should your business prepare for the changes?

Conventionally, businesses operate debt recovery on a period of 7 – 14 days and the new rules will be extending this to 30 days or more. This is going to have a clear impact on cash flow. There will also be increased administrative costs where businesses are being asked to provide breakdowns of accounts and additional information to debtors.

Practically, a business can prepare for these changes by:

• checking that they have efficient cash collection systems in place and procedures for holding data in an easy to access format. We can provide advice on your obligations under the Data Protection Act and the forthcoming General Data Protection Regulation changes to help you streamline what you need to keep;
• considering if there are any debts that it would be more cost-effective to pursue now rather than after the new changes have come into force.

How can our team can help after the changes?

At Bradley Haynes Law, we have extensive experience of effectively and efficiently recovering debts and we are also experienced in mediating disputes to avoid formal action in the courts. We can look at your wider business needs, such as reviewing your terms and conditions of trading, and where debt actions relate to other legal areas we can advise you on appropriately following those Pre-Action Protocols to avoid you losing revenue for non-compliance.

For a free half-hour initial meeting under the Lawyers for Business scheme to discuss your requirements, contact Julian at: julian@bradleyhayneslaw.co.uk or on: 01905 900919 to book your appointment by telephone or in person.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 8 September 2017. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.