When you’re owed money, trying to recover what you’re owed can be frustrating and long-winded. Unpaid debt can cause substantial financial strain on businesses and have wide-reaching impact on every aspect of your operations. This is especially the case if you don’t understand where you stand legally. In this blog, we’ve put together a simple guide to debt recovery in the UK, covering how it works and what your rights are, to empower you to take action and recover what is rightfully yours.
If you are owed money by an individual, business, or client, and they won’t pay you, you will need to initiate what is known as ‘debt recovery’. As the term suggests, this is the process through which a creditor tries to get someone who owes them money to pay.
The debt recovery process does not involve immediately launching legal action, but consists of a series of steps that aim to get the person in question to pay what they owe you.
If another business is late in paying you for goods or services, you have the legal right to claim interest and debt recovery costs.
A payment is classified as being ‘late’ if it remains unpaid 60 days after the agreed date for business transactions. If you did not agree an explicit payment date, then a payment is considered overdue by 30 days after the invoice is received or after you deliver the goods or services (if this is after the delivery of the invoice).
You can charge statutory interest if another business is late in paying you. This currently stands at 8% (correct at the time of writing).
You also have the legal right to charge a business a fixed sum to cover your debt recovery costs. The fixed sum varies depending on the value of the debt. For instance, you can charge £40 of debt recovery cost for a debt that is up to £999.99.
Let’s take a look at different ways you can recover debt that is owed to you. It’s important to keep a thorough paper-trail and follow proper protocols to strengthen your claim, should you end up in court. That being said, sometimes it’s not necessary to pursue formal legal action against your debtor.
Before opting for more ‘official’ methods of debt recovery, you can try to reach out on an informal basis to the person or business that owes you money. You may be able to negotiate and agree a plan for repayment without the need for third-party support or intervention.
Mediation is another effective debt recovery strategy that you should consider. This is an alternative route to settling your dispute in court and is often less costly and less emotionally draining.
You can, of course, choose to instruct a solicitor to help you recover your debt.
A letter before action, also referred to as a ‘letter of claim’ or ‘letter before claim’, initiates the formal debt recovery process. Your solicitor will compose and send a legal letter that informs the debtor that you will be initiating legal action against them if they don’t pay the money they owe.
In some cases, the letter before action is sufficient to compel the debtor to pay.
If all else fails, your solicitor will take your claim to court. It’s advisable to reserve this course of action as an absolute last option. This is because court claims can be lengthy and costly. And in some cases, even if you do win, it may happen that the other party is unable to pay anyway.
If you do win, you will get what is called a County Court Judgment (CCJ), which is an order from the court for the creditor to pay. If the creditor still fails to pay, you can seek an enforcement action.
An enforcement action is where you ask the court to enforce the judgement in your favour and collect payment from the person (or business) that owes you. Note, there is a fee associated with seeking an enforcement action.
An enforcement action can give you more information about the debtor’s finances and their ability to pay. Alternatively, you can get a ‘warrant of control’ through which the court will send bailiffs to collect the money you are owed.
If an individual owes you money, you can also ask the court to deduct money directly from the debtor’s wages – this is known as ‘attachment of earnings’.
Under a third-party debt order you can request that the court freezes the debtors money or assets.
Finally, you can ask the court to charge the debtor’s land or property under what is known as a ‘charging order’.
Some people choose to work with a specialist debt recovery agency. This agency will usually work with a solicitor and work to recover your debt on your behalf. Whatever your situation it’s always best to work with a solicitor who can support you and advise on the best course of action. To ensure you’re able to properly recover what is owed to you, get in touch with our dedicated team.
Here are the answers to some of the most commonly asked questions about debt recovery.
There are a number of different ways to recover debt that is owed to you. Creditors can choose to try more ‘informal’ approaches before threatening, or actually taking, legal action. In most cases, it is advisable to work with a debt recovery expert to understand your rights and available courses of action.
If you owe money and do not pay on time, your creditor may take you to court.
Absolutely. Though debt recovery doesn’t necessarily equate to a court case, a creditor is fully within their rights to take you to court if you owe them money and have not paid on time.
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