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Can’t Pay, Won’t Pay – Dealing with Business Debtors


Simple ways to minimise the risk of non-payment…

If your business deals with individuals or sole traders (classed as ‘individuals’ for the purposes of debt recovery) you should be aware of the new Pre Action Protocol which came into effect in October 2017.

The Protocol applies to ‘any business (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader)’. It does not apply to business to business debts, so will not apply where a creditor is seeking to recover liabilities from a company, LLP or partnership.

According to the Ministry of Justice, 80-85% of court actions are debt actions, with the Citizens Advice Bureau recording 13,000 new debt problems every day.

Over 3000 Consumer County Court Judgements, with an average judgement value of £1495, are issued every day, whilst 248 individuals are declared insolvent or bankrupt.

These figures clearly reflect the scale of the consumer debt issue – making it vital for businesses to protect themselves from the fallout.

A few weeks ago we gave an overview of the new ‘rules’ in relation to recovering debt from consumers. Following on from this, we can advise some simple ways in which you can minimise the risk of debt from the outset:

Top tips for safeguarding against debt


Review your credit policy to reduce your risk

The changes in the recovery of debt from an individual or sole trader mean that legal action may no longer be cost effective.

How much of your business comes from individuals or sole traders? If it isn’t a significant part of your business, does it still make sense for you to provide services or goods on credit to individuals or sole traders? If it is still worth doing this kind of work, look at strengthening the requirements that individuals and sole traders have to meet.

Consider how you can reduce the risk of having a debt to recover in the first place. One easy way to do this when doing work for an agreed fee is to ask for payment before carrying out the work: “I’ll be happy to get started on that as soon as I’ve received your payment”, for example?

  • Restrict the credit given to consumers and sole traders
  • Obtain payment up-front where feasible

Review your customer on-boarding process

When taking on a new customer, use a pro-forma order and or confirmation letter, so that you have a written record of the work you will doing and the amount you will be paid.

Know what your customer’s status is – are they a consumer, sole trader, partnership, or limited company? Depending on their status, you may need to take a different approach to payment terms.

Consider getting customers to sign and confirm each order and make sure that you keep a record of every signed order.

It’s also relatively straightforward to carry out credit checks of your customers. We use CreditFocus for companies and Veriphy for consumers. CreditFocus will send alerts and updates if credit ratings change as well, so you can monitor any changes to company credit ratings and act accordingly.

  • Retain details of each agreement with your customers
  • Know the legal status of your customer? Business? Sole Trader? Consumer?
  • Credit check customers

Send a Letter Before Claim early in your credit control procedure

Given the additional timescales the new protocol creates, consider sending a Letter Before Claim early in your procedure.

This letter gives the debtor an opportunity to settle the outstanding amount before you begin the formal process of recovering the debt

An official letter from a solicitor, such as us, is very often enough to prompt a debtor into action.

We provide Letter Before Claims for a fixed fee of just £49…

For more information on the Pre-Action Protocol or to discuss any issues your business may be having in relation to recovering debt from an individual or sole trader, call us on 01284 701131.

You may wish to book one of our £99 fixed fee consultations where we will discuss your claim with you in detail and advise on the best course of action – contact us to arrange a date and time convenient to you.