What action can businesses take to help recover money owed?
7 Top Tips for Creditors to avoid debtors delaying payment by around 74 days due to The Pre-Action Protocol for Debt Claims” (PAPDC)
The aim of the PAPDC is to resolve debt issues by encouraging discussions between the parties to reach agreement without the need to start court proceedings.
PAPDC applies to ‘any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader)’.
PAPDC does not apply to business-to-business debts (partnerships or limited companies).
The debtor is given around 74 days grace before court proceedings can be issued, payment plans must be considered and only refused with good reason.
If the debtor fails to abide by the payment plan the creditor must issue a new Letter of Claim.
Failure to comply can result in cost sanctions for the creditor such as the inability to claim costs and interest from the debtor.
If the debtor fails to respond to the court proceedings and the creditor has not complied with PAPDC the court can refuse judgement. The creditor will have to re-start the pre-action protocol from step one and send a new Letter of Claim and documents (unless those documents have been sent in the last six months).
This process leaves the door open to debtors to cause delay by using the system to their advantage and the creditors wasting time and money. Here are some points to consider:
- Look at customers' history of payment and consider again who you give credit to and consider offering less generous terms
- Reduce the time limits in the current credit control process to avoid delays in collecting the debts. For example reducing your ‘accepted’ Debtor days and consider how the PAPDC pre-action agreements are managed.
- Review your contracts/standard terms and conditions/letters to ensure they comply with the new regulations.
- Ensure the relevant contract documents and information relating to the debt is easy to access. These must be sent by post, to comply with the PAPDC, even if you usually communicate by email.
- Ensure staff are trained to be fully compliant with the PAPDC requirements
- Look into alternative methods of collecting debts from individuals, for example if the debt is over £5,000 consider serving a Statutory Demand (the first stage of Bankruptcy)
- Consider what type of pre-action “ADR” may suit your business, taking into account the added cost. Write this into your standard terms and conditions.
For more information and resources, visit Justice on Gov.uk here >