If your business is in debt, debt collectors will usually take legal action as a last resort. This means they will contact you to arrange repayment of the debt, issue warning letters, and even visit your place of business in an attempt to recover the money owed.
In the UK, it's actually quite rare for debt collectors to take legal action against somebody. Most of the time, they'll try to negotiate a repayment plan first.
However, there are some cases where going to court is the only option. Here's what you need to know about debt collection and the courts in the UK.
What is the debt recovery process in the UK?
In the United Kingdom, debt recovery is a multi-step process that begins with an invoice for the outstanding debt being sent to the debtor.
If this proves unsuccessful, more formal steps are taken next such as issuing a letter of claim. A letter of claim is a document sent to the debtor that outlines the amount of debt owing, the legal rights of both parties, and what steps will be taken should the debt not be repaid.
These steps are normally taken by the business to whom the debt is owed, although they sometimes employ a third-party debt collection agency to pursue repayment on their behalf.
If the debtor fails to make payment of the outstanding balance after being sent the letter of claim, then a professional debt collection agency may be engaged.
Debt collection agencies act on behalf of creditors to collect the amount due, and they use various methods, including phone calls, payment request emails and letters. If the debtor fails to respond to these communications, then legal action can be taken against them.
This may involve filing a lawsuit against the debtor in court or taking out an order for the attachment of earnings. A County Court Judgement (CCJ) may also be obtained against the debtor, forcing them to pay the debt or risk having their assets seized.
Ultimately, if payments are still not made, the debt collection agency may take steps to seize assets in order to settle the debt. Bailiffs may be employed to visit the debtor's property and take possession of items which can be sold in order to settle the debt.
How long do debt collections have to collect a debt?
The length of time debt collectors have to collect a debt can vary depending on the type of debt and state it originated in.
Most unsecured debts, including credit card accounts, bills and personal loans, have a statute of limitations of three to six years. Once this time has elapsed, the creditor loses the right to collect payment on the debt, and the most they can do is attempt to send requests for payment.
In the UK, secured debts, such as mortgages, may have a longer time frame in which they can be collected, as they are secured against the value of an asset. This can be up to twelve years.
In certain cases, the limitation period may be extended or renewed if a payment is made on the debt. If this occurs, then the creditor has an additional period in which to collect the debt.
Personal injury debts have a shorter limitation period and are usually limited to three years.
It is important to note that although a debt may be time-barred, the creditor still has the right to pursue it if they choose. They may not be able to take legal action against a debtor, but they can still contact them in an attempt to collect payment.
Under what circumstances can a debt collector take you to court?
In the United Kingdom, debt collectors have the right to take legal action against people who are unable or unwilling to repay their debts.
If a person has failed to make payments on a debt over an extended period of time, and all other methods of negotiation and repayment plans have been exhausted, then a creditor may take them to court.
The court will then decide how much is owed, how regular payments must be made, if any extra costs should be added, such as interest or legal fees, and whether the debt can ever be written off completely.
If a debtor refuses to pay after being taken to court by their creditor, they can ultimately face insolvency proceedings which can limit access to credit or even lead to property repossession.
Therefore it is important for anyone in debt in the UK to make sure that they seek advice from professionals and work with their creditors in order to clarify and, ideally, resolve the situation before any legal action is taken against them.
Is there a different process for personal and business debt?
Yes, there is a different process for personal and business debt. Personal debts are usually handled through the courts, but businesses can be subject to insolvency proceedings which could involve liquidating assets or entering into an Individual Voluntary Arrangement (IVA).
An IVA is an agreement between the debtor and their creditors where the accounts receivables debt is paid off over an agreed period of time with a payment plan that takes into account the present circumstances and future income potential.
Businesses may also enter into a Company Voluntary Arrangement (CVA), which allows them to pay their debts over a set period of time while allowing them to continue trading. Both IVAs and CVAs are regulated by the Insolvency Act 1986.
There are a few things you can do to try and avoid being taken to court by a debt collector
One of the most important things you can do to avoid a court date with debt collectors is to stay on top of your bills. Effective accounts receivables management and budgeting, as well as regular communication with creditors, can help to avoid a court date.
Additionally, if you get behind or cannot afford your debt payments, reach out to the creditor or collector immediately. This communication will demonstrate your intention to address the debt in a timely manner and could potentially result in options for modified repayment plans.
As mentioned, most collection agencies would much rather put a payment plan in place with you than take you to court. If you’re able to agree on terms and make timely payments, they may be willing to settle the debt with you without going through the court system.
Ignoring collection notices or debt collectors won’t make the issue go away. In fact, ignoring the issue can only make matters worse.
Instead of waiting for the worst-case scenario to happen, take control of your financial situation by developing a plan and communicating openly with creditors. You may be surprised at how willing they are to work with you.
Businesses in the UK write off £8 in every £100 as uncollectible, according to resulting in huge losses (according to Hilton-Baird). This is where Chaser can help.
Chaser helps to reduce this write-off rate and increase the chances of collecting outstanding debt. Chaser’s automated payment chasing and accounts receivables system sends text messages and emails on your behalf to remind customers of their outstanding debts. All activities are tracked and reported, so you can see what’s working and what isn’t.
By reducing the time it takes to chase payments and ensuring that your customers know payment deadlines, Chaser helps businesses reduce write-off rates and increase cash flow. For example, users like TaxAssist have been able to help their clients get £20,000 of overdue debt recovered in just 30 minutes using Chaser’s automated payment reminders.
Chaser also supports payment plans, enabling customers to spread out the repayment cost over a set period. This makes it easier for them to pay, while also reducing the chances of any further debts becoming uncollectible.
If the worst comes to the worst, our professional debt collection team is on hand to help. We’ll work with you to develop an effective strategy for retrieving payment from customers who are late on their payments, helping you get your money back.
Chaser debt collections use mediation instead of aggression to help customers and businesses reach a mutual agreement. We understand that debt collection is an emotionally charged process, so our team takes the time to listen and find beneficial solutions for all parties involved. Users like Huttie Group were able to recover £15,000 of old debt with Chaser collections, whilst keeping their customer relationships in-tact.
We can also advise you on what steps to take when pursuing customer debts, helping you manage your accounts receivables in a way that meets your objectives. We can provide strategic advice on the best ways to approach customers, and even prepare you with templates for sending out letters or emails.
Contact Chaser today or start your free trial to find out how we can help you in your debt collection process. We look forward to helping you get invoices paid faster.