The Business Debt Recovery Process

Most, if not all, firms may need to pursue an outstanding debt at some point, regardless of their industry. To help with cash flow, it is crucial for many firms to effectively handle the recovery of unpaid debts.

Debt collection meeting

Businesses must have a comprehensive debt recovery procedure in place to do this, and they may also want the help of a qualified debt recovery solicitor to guarantee fast payment of bills. The business debt recovery team at Myerson Solicitors can help you recover what is owed to your business.

How Long do Businesses Have to Collect a Debt?

Businesses in England and Wales have six years from the due date of the payment to pursue the unpaid debt. For instance, firms would have until August 11, 2028, to file court papers concerning a payment due on August 12, 2022.

Any claim becomes time-barred when six years have passed, making it impossible to pursue the obligation after that point. It is the responsibility of company creditors to demonstrate that the six-year window has yet to pass.

It always pays to check with a debt collection solicitor to see if a claim can still be made if you’re still determining whether you can still pursue your unpaid business debt given the passage of time.

Is it Worth Pursuing The Debt?

It is crucial to think about whether you have a chance at recovering the business debt that is owed to you early on. It is crucial to ensure that you don’t face any further legal costs when chasing an irrecoverable debt.

If court proceedings are filed and subsequently successfully defended, any debts with a value of less than £10,000 are assigned to the minor claims track of the court. Unfortunately, only a small part of the costs incurred on the small claims track are recoverable, making it unfair for lawyers to handle defended small claims track procedures since most legal fees are unlikely to be reimbursed.

Before choosing to forgive minor debts, you should exercise caution, especially if doing so is likely to create a precedent and inspire debtors with modest balances to default on their obligations.

Identifying and comprehending why the debtor hasn’t paid the larger debts is critical. The debtor may claim, for instance, that the products you provided were of poor quality. Before taking any action to reclaim the debt, problems like these should be investigated.

If the debtor is having trouble making payments, it could be more prudent to work out a smaller payment amount with them or to arrange for the debt to be paid off gradually.

Debt collection

Commencing Recovery of Debt

Step 1. Create an invoice

Sending an invoice to your customer should always be the first step in the debt collection process. Ideally, you and your client have already agreed upon the payment conditions at your business partnership’s commencement.

An invoice is a payment request, and invoices should specify the terms of payment as well as the items that will be charged. Set-out invoices are obviously significant from a legal standpoint but also a critical component of record-keeping. For bookkeeping, tax returns, and accounting purposes, businesses need records of the invoices they have issued.

Step 2. Chase payment

You should start chasing for payment if your invoice still needs to be paid per your payment terms. This will entail calling and emailing your consumer to request payment.

Keep a record of all communications you have with your client via phone and email, as you may need to refer to them if you need to hire a debt collection lawyer to pursue the debt.

Step 3. Credit hold

Stopping work for a client until they have settled the outstanding debt is one technique to get them to pay. This will frequently resolve the issue, especially if the debtor will suffer if you cease giving them your products or services.

Step 4. Letter of demand

You may think about hiring a specialised debt collection lawyer to pursue the debt if the debtor has ignored your attempts to get the unpaid balance collected.

Any debt recovery lawyer will send the debtor a letter of demand as their first action. This outlines the total amount owed as well as the debt’s origin. In most cases, interest and fees may also increase the outstanding debt. The demand letter will specify a brief response period for the debtor.

When a corporation, such as a limited company, is responsible for the debt, the debtor typically has 7 or 14 days to pay the obligation in full or provide justification for their position that the debt is not owed. If a sole proprietor is responsible for the debt, they have 30 days to pay it or explain why they don’t believe it is their responsibility.

Before issuing any court proceedings, the letter of demand must be sent. It is a crucial step in the debt recovery process. In the experience of Myerson Solicitors, a letter of demand is occasionally all that is necessary for a debtor to settle any unpaid payments owed to your company, necessitating no further action.

Step 5. Issue court proceedings

The next step would typically be to file legal action to recover the sum owed if the letter of demand is ignored or the debtor fails to make a convincing case for why the debt is not owed.

Normally, a claim for the full amount of the original invoice, interest, and costs would be submitted in any court proceedings.

The court is sent the court proceedings when they have been drafted. The court will issue court papers, which will then be served to the debtor by the court or your attorney. The debtor has 14 days to reply to the court proceedings after being served with the documents.

Step 6. Obtaining judgment

You may apply to the court for judgement if the debtor doesn’t react to the court proceedings within the allotted time frame.

The debtor will be required to pay you money if you win a judgement against them. The loan amount plus interest and other fees will be included in this. Either the debtor pays immediately or is given a deadline to do so.

The decision will be recorded in the Register of Judgments. The judgement will negatively affect the debtor’s credit score if it is not fully paid within 30 days. Their capacity to obtain credit from banks and building societies would be impacted. If the judgement is paid after the 30-day window has passed, it won’t be struck from the Register; instead, it will be noted as “satisfied,” which means it has been paid.

Step 7. Enforcing the judgment

Please be aware that a judgement does not, by itself, ensure that the debt will be paid. If the debtor doesn’t pay up, it might be essential to pursue enforcement action.

There are numerous ways to enforce the agreement, including:

  • If the debtor company owns assets with considerable value (such as machinery, computers, or stock), you can ask bailiffs to seize and sell such assets to pay off the obligation. Sometimes all it takes to get the debt paid is for bailiffs to show up at the debtor’s premises.
  • Getting a third-party debt order that allows you to seize money owed to the debtor but held by a third party. For instance, funds in a bank account could be transferred to you rather than the debtor. When there is a supply chain and a company farther up the line owes money to your judgement debtor, this strategy can be helpful.
  • Obtaining a charging order on the debtor’s property to sell it to pay off the debt. Although it is less frequent, charging orders can be obtained over other assets, such as shares.
  • Requesting that the debtor be declared bankrupt (if they are a sole proprietor) or wound up (if it is another type of business such as a limited company). A trustee in bankruptcy or liquidator will then seize the debtor’s assets and distribute them among all creditors following insolvency rules. A word of warning: depending on the debtor’s assets and debts, bankruptcy and winding-up proceedings can be costly and time-consuming and may not result in any recovery at all.

Myerson’s Dispute Resolution Solicitors are experts in the Business Debt Recovery Process, with years of hands-on experience helping businesses stay afloat and lawfully reclaim unpaid debts.


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