- Letter Before Action
- Issue of Proceedings and Obtaining Judgment
- Enforcement
- Statutory Demand
- Defended Claims
- Credit Control
Letter Before Action
We normally start a new case by sending a letter before action asking the debtor to pay in full within a specified time, and stating in no uncertain terms that in default, Court proceedings will be started and will include a claim for costs, fees and interest.
Unless you say otherwise, in all commercial debt recovery cases we will include a claim for interest and compensation costs under the Late Payment of Commercial Debts (Interest) Act 1998. Alternatively, we will claim interest at the relevant rate set out in your terms and conditions.
When you instruct us to send a letter before action, we will:
- Carry out a full credit check on your debtor (if a company) using our in-house facility or alternatively an insolvency search (if your debtor is an individual);
- Calculate any contractual interest payable (arising from your terms and conditions) or late payment interest/costs from the due date of each invoice;
- Send a letter before action on the same day of instructions, provided your instructions are received before 2pm;
- Acknowledge receipt of your instructions by email to confirm that the letter before action has been sent, together with details of the amount demanded including interest and costs if appropriate;
- When the deadline in the letter before action expires contact you to check whether payment has been received, and if not we will advise you about your further options and the next course of action. Back to top
Issue of Proceedings and Obtaining Judgment
If payment is not made in full after our pre-issue demand, we will seek your instructions to start legal proceedings at the County Court. Before issuing proceedings we will perform a further credit check/insolvency search on your debtor using our in-house facility. We will add claims for fixed costs, court fee and interest (statutory, contractual or late payment) to the debt and these will be payable by the debtor if a successful recovery is made. On receipt of the Claim Form the debtor has 14 days to say if he will:
- Pay the claim in full;
- Admit the claim and make an offer to pay in full by a certain date or by instalments;
- Part admit the claim/part defend the claim; or
- Defend the claim in full.
If the debtor responds, we will contact you and advise you accordingly. If the debtor fails to respond to the Court within the 14 day time limit, we will automatically ask for judgment to be entered against the debtor.
Unless the debtor pays the claim in full within 14 days or defends the claim, you will be entitled to seek judgment in default against the debtor. The judgment sum will be payable by the debtor immediately, and at this stage we can either write to the debtor to formally request payment within seven days or proceed immediately to the final stage of the County Court recovery process – which is enforcement.
County Court judgments made against debtors are recorded on the Register of County Court Judgments for six years, unless the full amount of the judgment debt is paid within one month, in which case the debtor can apply to cancel the entry. If the full amount is paid after one month the debtor can apply for a certificate of satisfaction but the entry will remain on the register marked as “satisfied”. Back to top
Enforcement
There are various ways to enforce payment of a judgment debt, but success will largely depend on:
- What information is known about the debtor
- The debtor’s current circumstances
- Whether the debtor is a limited company or an individual
The main methods are as follows:
Enforcement Agents
(High Court Enforcement Officer/County Court Bailiff)
Enforcement Agents have the power to seize and sell the debtor’s goods to cover the amount of the debt. They will try to contact the debtor to allow them an opportunity to pay the debt, often by instalments. The debtor’s goods cannot always be removed. For example, the agents cannot remove essential household items, tradesman’s tools, or goods subject to hire purchase or rental agreements. Also, they won’t take goods if they are not worth enough to pay the warrant after the costs of removal and sale. It is important to remember that Enforcement Agents only have a right of peaceful entry so they cannot use force to enter a debtor’s premises.
Charging Order
This is a process which enables a judgment creditor to secure payment of the judgment debt upon any equity in a debtor’s property. If a Charging Order is granted, the judgment creditor can register a charge over the debtor’s property with the Land Registry. This way, when the debtor eventually sells the property or there is a change in title, the judgment creditor should get paid, provided there is sufficient equity. The use of Charging Orders has increased massively in recent years and is the enforcement option of choice when creditors are faced with debtors who are asset-rich but cash-poor.
Third Party Debt Order
If you know that the debtor has money held by a third party, you can make an application to the court to prevent the debtor’s access to that money and have it paid direct to you. The most common application of this method is against the bank account of the judgment debtor. A Third Party Debt Order requires the third party to pay the cash owed to the judgment debtor direct to the judgment creditor in order to satisfy the judgment debt.
Attachment of Earnings
If the judgment debtor is employed, Attachment of Earnings is often the most effective method of enforcement. This order can be made against wages, salaries, fees etc but not against self-employed income. This order requires an employer to make regular deductions from the judgment debtor’s earnings and make payments into court in order to satisfy the judgment debt. Back to top
Statutory Demand
An alternative to a letter before action is a formal Statutory Demand under the Insolvency Act. A Statutory Demand is a formal step which precedes the presentation of a Winding Up Petition against a company or a Bankruptcy Petition against an individual.
A Statutory Demand must be personally served on the debtor. We will arrange this on your behalf by instructing a process server. If the debtor does not pay the debt or contest the demand within 21 days of receipt, you can start formal insolvency proceedings. Due to the formal appearance of a Statutory Demand and the possible consequences of non-payment, this is a much more aggressive and effective method of recovering payment. To serve a Statutory Demand, the debt must be over £750 and you must not know of any dispute in relation to your claim, or a debtor can apply to the County Court to set the Statutory Demand aside. Back to top
Defended Claims
If the debtor defends your claim, our fully experienced Dispute Resolution Department is on hand to advise and help you.
Our team is long-established and handles the full range of commercial disputes from those involving commercial contract claims to the supply of goods and services and recovery of assets. Our approach is designed to be both robust and sensitive to the wider commercial picture: always aiming to avoid lengthy and costly litigation in favour of outcomes that align with our client’s objectives. Sometimes disputes are unavoidable and they can result in the destruction of a business and relationships. However, with the help of our experienced Dispute Resolution team, conflicts can be managed and resolved. Back to top
Credit Control
An efficient and structured internal credit control procedure is a vital part of any business, whether large or small. The main points to consider are as follows:
Has a credit check been performed? When undertaking any new contractual relationship, it is important to assess the risk of contracting with that party and have some background knowledge. Do not deliver until you are satisfied you can allow credit.
Do you know the correct identity of your customer? It is important you know the correct identity of the party you are about to trade with. It is surprising how often businesses do not, and what little information they have about their customers. Are you trading with a sole trader, a partnership, a limited liability partnership or a limited company? If you are not trading with a limited company, do you know the name of the sole proprietor or names of the partners? If the debtor’s name is incorrectly stated in any court proceedings, there will be time and cost implications. Also, proceedings issued against an individual “trading as” can be far more effective.
Does your customer understand your payment terms? Ensure you communicate your credit terms clearly on orders, invoices and statements.
Do you have strict credit control procedures in place? Ensure you have clear procedures in place with standard reminder letters going out at set intervals. The first reminder letter should always follow soon after the due date for payment. A telephone call to the customer should always be part of the credit control procedure.
Do you carry out what you threaten to do? If you do not receive payment, don’t be afraid of taking further action by instructing us to pursue the matter further. Remember, act quickly and a firmly worded letter before action from us is often all that is required to obtain payment. Back to top