What is the Legal Process for Recovering a Business Debt?
Businesses usually entail trusting your customers or your suppliers to pay you in a timely manner. When payments don’t arrive or worse, are forgotten, the ripple effect on your cash flow can be anxiety-provoking and sometimes even dire. Nobody likes chasing unpaid debts and many business owners question whether all the trouble is worthwhile. Understanding what the law entails and what avenues are open to you makes you better able to judge what action is most appropriate to your case. Here is the legal process for recovering a business debt.
Action Before Going to Court
The initial action is typically to advise the debtor, in writing, precisely what they owe and by when they need to pay; it consists of a Letter Before Action (LBA). It’s a formal letter which not only advises of the sum and due date, but also cautions that if they fail to pay, action at law may ensue.
More often than you might think, the severity of an official letter is sufficient to elicit payment without going anywhere near a courtroom. If you’re unsure how to draft the letter, or you want to be confident it ticks the right legal boxes, it’s worth getting support from experienced litigation solicitors.
Adding Interest & Costs
One question many business owners have is this one: “Can I claim more than just the debt itself?” The answer is often yes in most instances.
As a result of the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to add statutory interest (currently 8% on top of the Bank of England base rate) and recover certain reasonable costs associated with pursuing the debt. It can help to offset the aggravation and cost of having to deal with late payers.
Pursuing the Claim to Court
If the debtor fails to pay even after this, you need to issue court proceedings via the County Court Money Claims Centre. When you serve the claim, the debtor has 14 days to act: they can pay, accept the debt, or seek to defend themselves.
If they fail to do this, you can apply for a County Court Judgment (CCJ). The judgement entitles you to enforcement action, e.g. sending bailiffs or taking out a charging order.
To learn more about what enforcement actually entails, you might find what debt collectors can and cannot do to be useful reading material.
Timeframes & Personal Liability
How long does the entire process last? It depends. Sometimes a debtor pays right away after receiving legal papers. Others, particularly if they contest the claim, might take several months.
You should also be clear on who you can chase. If your debtor is a limited company, its directors are not typically liable personally.
Weighing Up Whether It’s Worth It
At some point, every business owner asks: “Is chasing this debt worth the stress?” The answer depends on the facts: how much you’re owed, whether the debtor has the means to pay, and the likelihood of enforcing a judgement.
Having the right solicitors behind you can alleviate much of the worry and uncertainty. Caversham Solicitors knows what a burden debt recovery can be and can provide practical, personalised help at every turn. From drafting accurate LBAs to dealing with court claims and calculating statutory interest.
Contact Caversham Solicitors today to discuss your debt recovery options and take the first step towards protecting your business.
