Whether it’s a client who hasn’t paid an invoice or recovering sums paid from a supplier who hasn’t delivered goods, financial disputes can significantly impact a company’s cash flow.
While negotiation and mediation are often the first steps, sometimes more formal legal procedures are necessary.
Issue a formal demand letter
Before taking any legal action, it’s usual practice (and a requirement under the Civil Procedureal Rules) to send a formal demand letter to the debtor. This letter should include:
County Court Judgment (CCJ)
If the statutory demand is ignored, you can apply for a County Court Judgment (CCJ). This is a court order stating that the debtor must pay the money owed. A CCJ can severely impact the debtor’s credit rating, making it a powerful tool for debt recovery.
How to apply for a CCJ:
If you obtain a CCJ and the debtor still does not pay, you have several enforcement options:
If the demand letter does not result in payment, the next step is to issue a statutory demand. This is a formal legal notice requiring the debtor to pay the debt within 21 days.
Failure to comply can result in further legal action, including winding-up proceedings for companies or bankruptcy proceedings for individuals.
Care should be taken when issuing a statutory demand. They should not be simply used as the first call or a “blunt instrument of” debt collection.
If there is any dispute in respect of the debt or the use of any incorrectly calculated figure can lead to an application to Court to see that the demand be set aside, and the issuing party can be ordered to pay costs.
As a last resort, you can initiate insolvency proceedings.
These proceedings include a winding-up petition for companies, which could result in the company being liquidated to pay off debts.
For an individual, a bankruptcy petition can be filed, leading to the sale of the debtor’s assets to pay off the debt.
It’s important to note that legal action can be costly. If successful, you may be able to recover these costs from the debtor. However, you rarely recover all of your costs.
Best practices for debt recovery
Documentation – Keep all records of transactions, communications, and agreements. This will serve as evidence if you need to go to court.
Due diligence – Always perform background checks on new clients or suppliers to assess their financial stability.
Clear terms – Make sure that all terms and conditions are clearly stated and agreed upon by both parties.
Timely action – The sooner you act on a debt, the higher the chances of recovering it.
Legal advice – Consult a legal expert to understand your options and the best course of action for your specific case.
It is crucial to follow the legal procedures meticulously to improve your chances of successfully recovering the money owed to you.
If you are in need of assistance with recovering a debt for your business, our expert team are here to help. Contact us today.