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recovering unpaid debts in the UK

Recovering Unpaid Debts – 3 Expert tips

Last modified: May 7, 2024

Recovering Unpaid Debts in the UK

Recovering Unpaid Debts can be a challenging task for any individual or business. In the modern economic climate, it will pay to understand the debt recovery landscape and the solutions available.

In the business world for example, managing finances effectively involves not only tracking your income and expenditures but also ensuring that unpaid business debts are recovered.

Debt Recovery is a must for many UK businesses. Non-payment directly impacts business cash flow and overall financial health. This article aims to shed light on the process of recovering unpaid debts in the UK, offering practical advice where appropriate.

Understanding Debt Recovery

Debt recovery refers to the process undertaken by businesses and individuals to collect unpaid debts from debtors. This typically involves several stages, starting from internal collection efforts to potentially legal proceedings if preliminary steps fail.

Small Business Debt Recovery is slightly different than Personal Debt Recovery. Each has different obstacles and challenges that come with relevant laws and legislations. This is often why many Businesses simply outsource debt collection 

The ultimate goal is to recover owed money while maintaining a professional relationship with the debt whenever and wherever possible.

Initial 3 Steps in Debt Recovery

  1. Sending Reminders: Initially, it’s essential to ensure that the debtor is aware of the unpaid invoice or outstanding debt . Sending polite but firm reminders, initially perhaps an email followed by a formal letter before action, can sometimes be enough to prompt a payment.
  2. Direct Contact: If reminders fail, direct contact through a phone call can help in understanding any reasons behind the non-payment and possibly negotiating a payment plan. It’s crucial to keep a record of all communications for future reference.
  3. Interest and Late Payment Charges: i – Under UK law, businesses can charge business debtors interest and late payment fees if the terms of the contract permit or under the Late Payment of Commercial Debts (Interest) Act 1998. Informing the debtor of these charges might incentivise them to settle their debt faster. For Personally owed debts, you may be able to add interest depending on your terms and if you are appropriately authorised to charge interest under UK law.

Professional Debt Collection

If internal efforts to collect the debt fail, it should be time to consider hiring a professional debt collection agency. Not all Debt Collection Agencies have an open door policy so it is important to source one that is able to help with your problem.

There are a number of agencies that specialise in debt recovery across the UK.  Most will operate and should within the legal framework to ensure compliance while attempting to recover debts.

Choosing a reputable agency is paramount – look for a debt recovery agency that is well established, has solid reviews and is appropriately licensed. Also check they are members of the Credit Services Association (CSA) in the UK.

Debt Collection Agency costs can  be minimal when compared with Solicitors and Court Fees. It is important to understand the fee structure prior to working with any debt collection agency. Frontline Collections for example has a comprehensive service with complete transparency for peace of mind.

Recovering Unpaid Debts -  3 Expert tips Frontline Collections

Legal Action for Recovering Unpaid Debts

Taking legal action to recover an unpaid debt can be a very costly and time-consuming but may be necessary if all other attempts have failed. At Frontline, we believe it should only ever be used as a last resort or where the debt is disputed.

Fact: Less than 1% of the Debt Collection cases Frontline deals with, requires Court Action.

The legal debt recovery process can typically involve some of the following steps:

Small Claims Procedure

For debts under £10,000, businesses can use the Money Claim Online service or the County Court to make a small claim. This process can be done by an individual, and while you can do it without a lawyer, seeking professional or legal advice is recommended to enhance your chances of success.

One point to make is that current County Court backlogs and hearing delays are almost reaching 365 days in some instances as stated by the Law society recently.

County Court Judgements (CCJs)

If a debtor fails to respond to a small claim, the court may issue a CCJ against them. This not only affects the debtor’s credit rating but also increases the pressure to pay. If the debtor still does not pay, CCJ Enforcement actions can be taken.

Enforcing a CCJ against a Limited Company can be straightforward. However, worth noting that if they have zero assets, the likelihood of success will be minimal. The same pretty much applies to enforcing a CCJ against an individual also.

High Court Enforcement

For debts over £600 (excluding county court judgement debts under £600), you can transfer the judgement to the High Court for enforcement.

High Court Enforcement Officers (HCEOs) have greater powers than bailiffs working for the County Court, including the ability to enter commercial premises to collect or take control of goods to the value of the debt.

Best Practices in Debt Recovery

  • Documentation is Key: Keep detailed records of all transactions, communications, and attempts at debt recovery. This documentation can be crucial to validate a debt.
  • Stay Professional: While it’s frustrating to deal with recovering unpaid debts, maintaining professionalism is vital. Harassment or overly aggressive tactics can backfire legally and damage your business’s reputation.
  • Know the Law: Understanding the legal framework for debt recovery and staying compliant is a must. This includes knowing when interest and fees can be applied and the legal proceedings involved in recovering unpaid debts.
  • Consider Mediation: Before taking legal action, mediation can be a cost-effective way to reach a settlement. It involves a neutral third party helping both sides come to an agreement.
  • Write Off Debts When Necessary: Sometimes, the cost of pursuing a debt, especially if the debtor is facing insolvency, might exceed the debt amount. Recognising when to write off a debt as a bad debt expense is an essential aspect of financial management.

Recovering Unpaid Debts Conclusion

Recovering unpaid debts in the UK requires a balanced approach of persistence, legal knowledge, and tact. While the initial steps involve direct communication and reminders, unresolved debts may necessitate a professional debt collection agency or legal action.

Understanding your options and rights under UK law enables businesses and individuals when recovering unpaid debts effectively. This is turn will help in safeguarding their financial interests and maintaining professional conduct.

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