THE much-discussed Pre-Action Protocol for Debt Claims came into force on 1 October 2017.
The big question is what impact will it have upon your business’s ability to collect cash?
The answer is, if your debtor is a Limited Company, LLP, or partnership none. However, if your debtor is an individual or an individual trading as a sole trader, the impact could be substantial.
The rationale behind the protocol is that if you front load the debt collection process, by putting the onus on the creditor to do a much more thorough job before sending a letter before claim and give the debtor longer to consider the letter before claim (30 days), there would be sufficient information available and opportunity to allow previously contested debts to be reviewed and resolved at an early stage without the need for court proceedings.
The protocol will, no doubt, in many cases prove successful in clearing up misunderstandings and getting invoices paid.
However, it will also provide the ‘clued up’ debtor with the tools to effectively extend the credit terms available to him way beyond those offered by the creditor.
The protocol provides that the debtor has 30 days to respond to a letter of claim. One of his options being to request further documents or further explanation from the creditor.
The creditor then has up to 30 days to provide the documentation or explanation requested. Even if the creditor is quick to act, a significant delay will be incurred as the creditor must allow the debtor a further 30 days to digest and consider the documents or explanation provided before issuing court proceedings.
Therefore, an evasive debtor can buy himself a minimum of 60 days from the date of a letter of claim until the creditor can, in compliance with the protocol, issue County Court proceedings.
What can you do as a creditor?
1. Be pro-active with your credit control, identify the potential problem debtors early and get letters before action sent as soon as reasonably practicable.
2. Anticipate any enquiries that the debtor may make and provide as much relevant information as you can with your letter of claim.
If you have debtors that are becoming a problem and you need to put strategies in place to obtain payment, contact Stuart Love at Friday Legal to discuss your options.
Further details in relation to the excellent commercial, corporate, commercial property, employment and litigation services offered by Friday Legal Solicitors can be found on their website at www.fridaylegal.com or via telephone on 01536 218888. Alternatively, you can contact Stuart Love directly by email
