Debt Recovery & Legal documents Debt Recovery & Legal documents

Do some of your customers owe you money?

If so, read this article to learn more about the recent debt recovery protocol and how Direct Line for Business can help you.

What do you do when a client or customer fails to pay? Do you immediately file a money claim online in order to enforce through the court system? No, because:

  • Litigation is time-consuming and costly;
  • The courts expect all claimants to have followed certain procedures and guidelines before commencing litigation. These rules are contained in the ‘Pre-Action Practice Direction’ and in 14 ‘pre-action protocols’.

The practice direction contains general rules. The parties are expected to have exchanged enough information to understand each other’s position and to have considered trying to resolve the matter without litigation.

The protocols pursue the same objective but contain more detailed rules for specific types of claim. The newest is the debt recovery protocol, which came into force on 1 October 2017. This applies where the debtor is an individual (or sole trader), but not if they’re a company or partnership.

Some of the main steps are:

  • You must send a letter of claim to the debtor complying with the details set out in the protocol. This letter must set out the contractual basis for the potential claim and your reason for rejecting any payment plan proposed.
  • The letter should include an information sheet, reply form, and a financial statement form.
  • Proceedings must not be issued within 30 days of the date of the letter (previously 14 days).
  • The debtor should respond using the reply form. Proceedings must not be issued by the creditor until 30 days after receiving the response from the debtor. This timescale can be extended if the debtor indicates they’re seeking legal advice. If matters aren’t resolved the creditor should give at least 14 days’ notice before starting proceedings.
  • If the debtor indicates they need more time, the parties should try to reach agreement for the debt to be paid in instalments based on the debtor’s income and expenditure, which should have been detailed in the financial statement.
  • The parties are expected to consider alternative means of resolving their dispute without litigation.

What this means for you and how to get help

These required steps are quite detailed, time-consuming and favour the debtor. If you’re owed money, act quickly and make sure you follow all the new requirements. If you don’t and later go to court, the court will take this into account. In particular, you may face cost sanctions.

But don’t worry. As a Direct Line for Business policyholder, you get access to our Legal Document Service, which includes an online debt management service as standard. We’ve recently updated our suite of debt recovery letters to help you pursue outstanding payments in compliance with the latest regulations. Our debt collection letters for unpaid invoices, offers three letters in one: the first requests payment, the second's a reminder, and third is the letter of claim meeting the conditions described above. We also provide the third letter, claim for an outstanding invoice, as a standalone document.

For extra peace of mind, you can always get one of our solicitors to check a document or letter you’ve prepared using our system to make sure it’s right for your situation. Plus, our jargon-free online guides will help you understand your rights and obligations in relation to collecting outstanding debts lawfully.

Business laws and regulations can change at any time, so make sure you regularly login to the Legal Document Service to keep complaint with the law and protect your business.

Getting started is easy

Simply click here to login or if you’ve not done so already, register to use the service. If registering for the first time, you’ll need your Direct Line for Business policy number to hand to complete the short registration process.

Once registered, you’ll not only get access to documents, but also to jargon-free online guides covering a wide range of legal subjects. Plus, for extra peace of mind, you can even send the documents you create through the service to our firm of solicitors who can check and, if necessary, make changes within three working days.

Remember, you can use our Legal Document Service as often as you need to.

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Added: 22 Feb 2018