Early Warning of Changes to Debt Recovery
On 1st October 2017, the Government will be introducing a Pre-Action Protocol (PAP) for debt recovery claims. We think it is worth warning our clients about the PAP as it is likely to impact on their credit control procedures and our own processes and thought needs to be given to the PAP so that it does not have a negative impact on your cashflow.
The PAP applies to all businesses which are seeking to claim payment of a debt from an individual, including a sole trader. It does not apply to debts due from another business but will apply to claims for unpaid rent and service charge due from leaseholders
The thinking behind this is that introduction of a special protocol may lead to early settlement of matters between the parties without the need to resort to formal court action and to reduce costs.
It will, however, have the effect of potentially making the recovery process longer. Under the PAP the following procedures will apply to all debts:
- An individual will have to be allowed no less than 30 days to reply to the Letter of Claim.
- A more substantive Letter of Claim is required detailing the parties to the contract, the contractual terms in the lease upon which you are seeking to rely.
Failure to comply with the above conditions could have the effect that any subsequent Claim being stayed to allow time for compliance of the PAP. Alternatively, the Court may impose sanctions on the party bringing the claim, such as depriving them from recovering costs or greatly reducing the costs awarded.
Whilst this is still a few months away, it may be worth bearing this in mind now and starting to consider your internal processes for chasing unpaid demands and the stage at which debts are referred to solicitors so that the extra time afforded to the debtor after issuing a letter of claim and before a claim can be issued does not result in a large increase in debtor days and impact upon the cashflow available to a management company or landlord.
It may be that you want to put in place your own PAP compliant letter of claim at an early stage or you may prefer to refer debts for collection at an earlier stage. Obviously, each management company and Landlord will have a slightly different requirement and view as to the way in which this new protocol will need to be integrated.
We shall be working hard with all of our clients to give training and advice as to this protocol and to ensure that the steps put in place meet your requirements whilst also meeting the PAP criteria. If you have any queries relating to the new PAP, or how this may affect you, contact a member of our team today on firstname.lastname@example.org or call 0333 0300 200.