New ‘Pre-action Protocol’ for debt claims. Are you ready?
A ‘Pre-action Protocol’ for debt claims comes into force on 1 October 2017. The Protocol places new requirements on businesses who are seeking payment of debts from an individual (including sole traders). However, the Protocol does not extend to business to business debt.
The Pre-action Protocol sets out the requirements for information which must be included in letters of claim which, alongside the expected points (i.e. the debt amount, interest being claimed and attaching a statement of account) also includes the requirement for an information sheet and reply form to be attached to the letter as well as a financial statement.
The letter must be sent on the day or the day after it is produced, and must be sent in the post, unless the debtor has explicitly provided alternative contact details.
The debtor has up to 30 days to respond to the letter of demand. If they fail to respond within this time then legal proceedings can be commenced. If the debtor does respond to the letter of demand by completing the reply form, then proceedings cannot be commenced less than 30 days from the receipt of the form or 30 days from the creditor providing the documents or information requested. The creditor must give 14 days’ notice of their intention to commence legal proceedings if agreement cannot be reached.
Failure to comply with the Protocol can lead to sanctions from the court including the party at fault paying the other’s costs, regardless of the outcome.
Issues for your business
- Although encouraging parties to communicate, the Protocol could increase the time from when an invoice is raised to when a claim can be issued. This will necessarily lead to a change to your credit control procedure.
- Your costs of printing and postage will also increase as all letters of demand covered by the Protocol will need to be sent by post. This could be addressed within your terms and conditions by seeking your client’s agreement to send correspondence by email.
- More positively, parties will be forced to engage with each other as never before which could lead to matters being resolved without recourse to the court, saving money on expensive court fees.
We at Brachers provide full advice in respect not only of debt recovery but also credit control procedures. We would be more than happy to hold an informal discussion as to how your terms and conditions and credit control procedures can be re-written to deal with the forthcoming introduction of the Protocol.