Many people have heard the term ‘debt recovery’ but often, they do not understand precisely what it involves and the process that must be followed.
Debt recovery can be both time consuming and resource heavy, so we appreciate how much of a drain it can be on a company’s finance or credit control team. In this article we will answer commonly asked questions as we define debt recovery and the subsequent steps that can be taken to achieve the results you’re looking for. Let’s get started.
What is debt recovery?
Debt recovery is the process of a creditor reclaiming money owed to them by a debtor. This could be debt owed to an individual by another individual, or debt owed to or by a business. Debt recovery is typically carried out by a business’s internal credit control team or by an external debt recovery partner – such as our own team of experts at Legal Recoveries.
How could a debt recovery firm support me?
As with any service, if it’s not your area of expertise, it’s better to employ a team of specialists. Debt recovery experts are perfectly placed to support you with reclaiming owed money from a debtor because they understand the necessary processes that need to be followed in order to recover what is rightfully yours.
Not only are there processes to follow, but there are also legal obligations and practices that must be adhered to, to ensure that you as the creditor have the best possible opportunity of reclaiming the debt in an efficient and timely manner.
What is the debt recovery process?
When we are instructed to recover a debt, we always follow a methodical process to ensure that you as our client are not left exposed, while also ensuring that we have exhausted every possible scenario before we move on to the next stage.
As a debt recovery partner, our priority is ensuring that you receive payment in a timely manner, so the process we follow has this overall objective at its heart. The typical process for debt recovery is as follows:
Pre-Legal
This is the initial phase of debt collection and covers a combination of letters, emails and telephone calls to the debtor with the aim of recovering the outstanding debts before any legal action is taken – all within an initial 30 day period. Negotiations often take place to reach a payment agreement or settlement that is acceptable to both parties and if successful, this process avoids the time and costs associated with Court proceedings to recover the debt.
Investigation
If the debtor has not responded and no payment has been made following the pre-legal stage, then the next step is to gather information about the debtor in order to build a complete picture of its financial situation. This involves insight checks, address traces, employment traces and financial checks. The purpose of these checks is to establish a picture of the debtor and understand the likelihood of them being able to pay the debt. For commercial debts, a detailed business search can also be completed to understand the quantity of assets owned by the business.
Legal Action
If communications have failed then the creditor or debt recovery firm may consider commencing legal action. If the debtor is an individual in the UK, the creditor or agent must comply with pre action protocol by issuing a Letter Before Claim in which the debtor has 30 days to respond. If the debtor is a business, then a Letter Before Action or Final demand giving 7 days to respond is sufficient. If after this period no communication or payment has been made, then Court proceedings can commence.
Upon instruction, the Court will issue a claim form and accompanying response pack to the debtor, who has 14 days to respond. If the claim is ignored, then the debt recovery firm can request the court to enter judgement by default
Enforcement
If a payment has not been offered or no contact has been made by the debtor once judgement has been obtained, then a number of enforcement options are available and it is the responsibility of the debt recovery firm to advise on the best course of action. The most common enforcement options are:
- County Court Bailiff (debts up to £600)
- High Court enforcement agent (debts over £600)
- Attachment of earnings
- Charging order
- Third party debt orders
- Debtor to attend Court for questioning
Recovering your costs
Creditors need to review and look at their terms of business regarding provision for recovery of debt recovery costs and/or interest. Do your terms claim contractual interest? If not, then you should be able to claim statutory interest.
If your debtor is a business debtor, then you may be entitled to claim Late Payment Interest and compensation which can cover some, if not all, of your debt recovery costs.
Do you have outstanding debts?
If your business has outstanding debts, then we are perfectly placed to walk you through the process. With in-house legal expertise, alongside a team of experienced debt recovery specialists, we offer a holistic end-to-end solution where the reputation of your brand is our highest priority. Our caring culture alongside a tailor approach for each and every client has seen us instructed to recover debts for commercial, healthcare, legal and utilities organisations.
Instruct us today by speaking to our client services team.
