This will affect a business if it has outstanding debts due from individuals and could have a detrimental impact on its cash flow.
Will Your Business Be Affected?
The Protocol applies to all businesses (including sole traders, partnerships and public bodies) claiming payment of a debt from an individual debtor (including a sole trader).
The Protocol does not apply to business-to-business debts unless:
- The debtor is a sole trader.
- The debt is covered by another Pre-Action Protocol such as Construction and Engineering.
- Any claims for the recovery of Taxes And Duties.
What Is Changing?
The steps are more onerous and time consuming for creditors, including:
- Sending an enhanced Letter of Claim to a debtor, containing full details of the debts as well as a prescribed list of information including copies of all documents, an up-to-date statement of account for the debt, a reply form and a financial statement form to be completed by the debtor.
- Allowing 30 days for a response (rather than the usual 14 days). If the debtor does not reply to the letter of claim within 30 days, the creditor may commence court proceedings.
- Extending this period if the debtor is seeking debt advice, requests further documentation or requires more time to pay.
- Providing the debtor with a copy of any document they request to see, within 30 days.
- If the debtor fails to fully complete a reply form, the onus is nevertheless on the creditor to contact the debtor to obtain any further information needed to properly understand the debtor’s position.
- If settlement still cannot be reached, the parties are obliged to take appropriate steps to resolve the dispute without commencing court proceedings. In particular, they should consider the use of alternative dispute resolution.
- If an agreement still cannot be reached, the creditor should give the debtor a further minimum of 14 days’ notice of its intention to commence court proceedings. Therefore proceedings can be delayed to up to 90 days.
What Should You Do Now to Prepare?
You should start preparing for the Protocol now by:
- Reflecting on whom you give credit to.
- Ensuring you have all customer information up to date so they can be contacted easily from the start.
- Undertaking credit checks on individuals and sole traders.
- Have a good record of all documentations and statements in relation to the debt, so you can act quickly when debts arise.
What If You Fail to Comply with the Protocol?
Failure to comply with the Protocol may result in further delay in the collection of debts, as well as:
- Additional costs sanctions, for example paying the debtor’s legal costs.
- A failure to recover your own costs at all.
- Not being able to recover interest from a debtor or obtaining some recovery but at a reduced rate.
VWV Debt Recovery Partner Dee Kundi said:
"The recovery of debts from individuals will be more time consuming for creditors. The new Protocol demands more patience and more detailed processes and procedures when collecting outstanding debts from either consumers or sole traders and court proceedings should be avoided at all costs.
A creditor can ensure compliance with the Protocol and keep its collection costs as low as possible by using a fixed cost debt recovery service."
How Can We Help?
We have implemented the Protocol into our workflows so that we can advise our clients on the information they need to provide within the 'enhanced' letter of claim and throughout the entire matter to ensure compliance.
Our Debt Recovery team acts on behalf of clients recovering debts on a national and international basis, incorporating pre-legal collections, trace and legal solutions which provides the flexibility that clients expect.
The team offers a tailored, cost effective debt recovery solutions as well as 24/7 access to its online debt recovery portal, including a management information reporting toolkit and a performance dashboard.
For more information, please contact Dee Kundi, in our Debt Recovery team, on 0121 227 3720.