When an individual in England and Wales fails to pay an overdue invoice, creditors must follow specific steps to recover the debt, as set out in the Pre-Action Protocol for Debt Claims. These steps aim to encourage resolution before litigation and ensure fairness in the process. Here is a brief overview:
1. Initial Contact and Reminder
The first step is to send a polite reminder or demand letter, notifying the debtor of the overdue invoice. This letter should include details of the amount due and payment terms. It is a good idea to allow some time for payment or to discuss potential payment plans.
2. Send a Formal Letter Before Action
If the debtor has not responded to the initial reminder, the next step is to send a formal “Letter Before Action” (LBA). This is a critical document that must be sent at least 14 days before any court proceedings can begin. The letter must:
– Clearly outline the amount owed.
– Provide evidence of the debt (e.g. the invoice).
– Warn the debtor of the potential legal consequences if the debt is not settled.
– Offer the debtor an opportunity to dispute the debt or suggest payment arrangements.
3. Allow Time for Response
After sending the LBA, creditors must wait at least 14 days to allow the debtor to respond. The debtor might settle the debt, propose a payment plan, or dispute the claim. If the debtor disputes the debt, the creditor must carefully assess the dispute before proceeding further.
4. Consider Alternative Dispute Resolution (ADR)
If the debtor disputes the debt, creditors should consider alternative dispute resolution methods, such as mediation or arbitration, before escalating the matter to court. This aligns with the Pre-Action Protocol, which aims to encourage resolution without litigation.
5. Issue a Claim (If no Settlement)
If the debtor fails to respond to the LBA or refuses to pay, and no alternative resolution has been reached, the creditor can then file a claim in court to recover the debt. The court process will involve the completion of a claim form and payment of a fee, after which the court will list a hearing if necessary.
Following the Pre-Action Protocol is essential, as failing to do so could result in penalties or an adverse judgment. The rules are designed to ensure that both parties have had a fair chance to resolve the matter before resorting to legal action. If you have any questions on recovering from a debtor, please contact a member of our specialist Debt Recovery Team.