EMC's guide to debt recovery

Having an effective debt recovery policy and service available is a vital safeguard in these difficult times.

The primary control must be recording each customer’s credit period with financial limit and then having a policy if either of these are exceeded.

As part of any internal insolvency protection, it is worth knowing the financial limits and potential costs that each recovery method entails.

For instance, for debts up to £5000, the small claims court can provide an economic solution to bad debt. Two fees may become due – an issue fee and a hearing fee. But combined these will not exceed £500.

Legal costs – that is the hire, by either party, of solicitors – is not a recoverable cost as it is the court’s intention that parties represent themselves. This is because disputes are expected to be relatively non-contentious.

For claims not exceeding £15 000, the fast track service is available. Court fees and costs increase but again are limited to approximately £900.

Before proceeding to court, the claimant is duty bound to provide a final warning letter before action. But to satisfy civil procedure rules, external debt recovery services will normally provide one of their own. As debt recovery services are provided at a charge, it is wise to ascertain a budget before proceeding.

Both the small claims and fast track services work to a timetable. A fast track hearing must begin within 30 weeks. Before this, as a means to recover debt, claimants must have followed ‘Wolf’s Pre-Action Protocols’.

Pre-action protocols

The specific requirements can be obtained from the Ministry for Justice’s website (www.justice.gov.uk), but it is worth understanding what the protocols’ objectives are.

The general aim of this protocol is to ensure that before court proceedings:

• The claimant and the defendant have provided sufficient information for each party to know the nature of the other’s case.
• Each party has had an opportunity to consider the other’s case and to accept or reject all or any part of the case made against them at the earliest possible stage.
• There is more pre-action contact between the parties.
• Better and earlier exchange of information occurs.
• There is better pre-action investigation by the parties.
• The parties have met formally on at least one occasion to define and agree the issues between them and explore possible ways to resolve the claim.
• The parties are in a position where they may be able to settle cases early and fairly without recourse to litigation.
• Proceedings will be conducted efficiently if litigation is necessary.

Alternative dispute resolution

The courts like disputes to be resolved using alternative dispute resolution (ADR), but for this to work there needs to be an acceptance by both parties that something is due. Without this ADR will fail.

Mediation can provide a binding agreement but only when it is written down and executed by both parties.

There are two formal ways of proceeding:

Option 1 – The courts

The venue – high, county or small – will depend on the sum in dispute. Perhaps the best-known method of obtaining payment is by making an application for summary judgment. Here, during a short hearing, the court will consider whether there is any prospect of a defence succeeding, and if they judge not, they will enter a judgment to this effect.

Option 2 – Insolvency proceedings

Winding up a business can be expensive, and where the debtor is declared bankrupt or insolvent, it may leave the claimant with little to recover any cash from.

However, where the debtor wishes to continue to trade, such actions can provide some relief. This route should only be taken where there is no ‘defence to action’ and where the debtor cannot afford to be seen in a bad debt situation.

This article was originally published in EMC February 2009 as Will you be making a full recovery?