Recovering Consumer Debt

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

With this scale of consumer debt, it’s not difficult to see why businesses that deal with individuals and sole traders, are hugely vulnerable.

The new Pre-Action Protocol for debt claims, which came into force in October 2017, is likely to make matters more difficult, particularly for smaller businesses – significantly increasing the timescales involved in recovering debt and requiring businesses to follow several steps before they are able to take legal action.

If your business has outstanding debts due from individuals or sole-traders, it’s vital that you familiarise yourself with the new protocol, as well as take steps to minimise the risks of accumulating debt in the first place.

What does this protocol mean for businesses?

The crux of the matter is that businesses dealing with consumers or sole traders, who operate on a credit basis (either regularly or as one-offs), will need to exercise a considerable amount of patience when faced with a debtor who won’t, or can’t, pay.

In the past, the threat of court proceedings following non-payment was often the first step for businesses wishing to recover the debt quickly. Now however, businesses will have to follow strict steps, designed to enable debtors and creditors to settle the issue between them, without the need to start court proceedings.

The timescales involved in each step of the protocol can be quite considerable – in practice, a debtor can delay the start of proceedings by at least 60 days and often more.

If the protocol is not followed however, the creditor is at risk of penalties from the Court.

The Pre-Action Protocol – step by step

Letter Before Claim

Before issuing proceedings, the creditor should send a letter (called a Letter Before Claim) which must provide certain specified information:

  • The letter must be clearly dated at the top and sent within a day of that date.
  • It must be posted unless the debtor has specifically requested all correspondence by email. A clause in your terms and conditions about the use of email is not a specific request. You can however send an additional copy by email as well (but only in addition).
  • The letter should give financial information as to:
  1. the amount of the debt
  2. any interest and charges.
  • If you send statements, you can enclose an up-to-date statement or a copy of the last statement and update the details in the letter. If you don’t send statements, just give the details of the debt interest and charges in the letter.
  • The letter should say whether or not interest and charges are continuing.
  • If the agreement was oral eg. an order placed over the telephone, say when, where and with whom the agreement was made. If you can, give the words used.
  • If the agreement was written, give the date and parties and say a copy can be requested.
  • The letter should say how the debt can be paid, so that the debtor has all the information they will need to facilitate the settlement of their account and avoid court action.
  • The letter must say where the Reply Form should be sent.

YOU MUST ENCLOSE THE FOLLOWING WITH THE LETTER BEFORE CLAIM:

  1. The prescribed information sheet
  2. The prescribed Reply Form
  3. A financial statement i.e. a form on which the debtor can give their financial details if they need time to pay

Copies of these can be found in the Ministry of Justice’s Protocol Document.


Timescales & Next Steps

The timescales and next steps you must abide by depends on the response by the debtor.

Below is an overview of some of the next steps that need to be considered, depending on the debtor’s response (or non-response). Please note, this is not absolute in every case and it is vital that you check the protocol carefully at each step before deciding on your course of action:

Debt protocol next steps

Resolving any issues

Often there are genuine reason why debts arise – if there is a dispute or the debtor needs time to pay, you should try to resolve these issues before going to court (for example by exchanging any relevant documents or information).

If necessary consider some form of ADR/Mediation. Many trade and professional bodies have schemes. We recommend and work with professional mediators, e.g. ProMediate. Contact us for more info.

Of course, one of the best ways to safeguard your business from debt is to ensure you have taken adequate steps to minimise the risk from the outset – next, we look at the important steps all businesses should take to ensure they are protected.


For further advice on recovering debt or to discuss your individual situation, contact us on 01284 701131. We offer fixed fee consultations designed to help you determine the best way forward.