How do you recover business debt?
Running a business can be tough, and one of the biggest challenges is dealing with unpaid debts. If you’re owed money by a customer, it’s important to take steps to recover the debt as soon as possible. The longer you wait, the more likely it is that you’ll never see the money again.
Whether it’s overdue invoices, unpaid loans, or breached contracts, the efficient recovery of debts is crucial for maintaining a healthy cash flow and sustaining business operations.
This article by Commercial Dispute Resolution Specialist Asim Din explores how the business debt recovery process works in England and Wales, explaining the steps involved and the enforcement options available.
How does the debt recovery process work?
Initial step
Keeping a good record of all invoices, letters, and other communications with the debtor will assist with any legal action if you intend to claim debt recovery costs on late payments. By having a clear understanding and grasp of the details surrounding the debt, businesses can proceed with confidence.
Informal Communication
Businesses should be proactive when it comes to debt recovery and late commercial payments. Sending letters or calling to remind the debtor of the amount outstanding and the deadline for payment allows businesses and debtors to explore mutually agreeable payment arrangements or alternative solutions, helping to avoid costly legal proceedings.
Formal Demand
If informal communication fails to yield results, the next step is to issue a formal demand letter. This letter, often referred to as a “letter before action,” outlines the outstanding debt, provides a final opportunity for the debtor to settle, and stipulates a deadline for payment. It is important to draft this letter carefully, as it serves as crucial evidence should legal proceedings become necessary for business debt recovery.
Legal Options for Debt Recovery
If informal communication does not result in late commercial payments being resolved, it may be necessary to pursue the alternative legal options at your disposal.
County Court Judgment (CCJ)
If the debtor fails to respond or settle the debt after receiving a formal demand, businesses may escalate the matter by filing a claim in the County Court. This involves completing the necessary paperwork, paying the appropriate court fees, and presenting the evidence supporting the claim.
Once the court issues a CCJ, it acts as a formal court order demanding the debtor to repay the debt within a specified timeframe.
Insolvency Proceedings
In cases where the debtor is unable to repay the debt, businesses may consider initiating insolvency proceedings. This includes issuing a winding-up petition for companies or a bankruptcy petition for individuals. These actions seek to liquidate the debtor’s assets and distribute the proceeds among the creditors.
Enforcement Options
If the debtor does not comply with the CCJ, businesses can pursue enforcement options to recover the debt. Several methods are available, depending on the circumstances and the amount owed:
Warrant of Control
This enforcement option allows businesses to instruct court-appointed enforcement officers, known as bailiffs, to seize and sell the debtor’s assets to repay the debt. Bailiffs have the authority to visit the debtor’s premises and take control of goods that can be sold at auction.
Attachment of Earnings Order
If the debtor is an individual employed under a contract of service, businesses can apply for an Attachment of Earnings Order. This requires the debtor’s employer to deduct a portion of their wages and pay it directly to the business until the debt is satisfied.
Charging Order
For debts secured against property, businesses can seek a Charging Order. This places a charge on the debtor’s property, preventing them from selling it without repaying the outstanding debt. The charge can be converted into a forced sale, forcing the debtor to settle the debt from the proceeds.
Third-Party Debt Order
When the debtor owes money to a third party (such as a bank or customer), businesses can apply for a Third-Party Debt Order. This allows the business to intercept and claim the funds owed to the debtor, diverting them towards the outstanding debt.
How long does a company have to recover a debt?
Under normal circumstances, the limitation period to claim debt recovery costs on late payments is six years. This is counted from the date when the debt become outstanding. The time limit then steps once a claim is issued in court.
It is also important to note that, under the Limitation Act, the six-year time limit will also restart from the date when the debt has been acknowledged in writing, or a part payment is made against the debt. Claims outside this window will be statute-barred.
Can I recover debt from a limited company?
Yes, if the debt owed to you is from a limited company, you will have a number of options available to you. Using a solicitor to recover a business debt can make this process much more straightforward.
Can directors or shareholders be held liable for a company’s debts?
There are some limited circumstances where a director or shareholders may be personally liable for a company debt.
Company status does offer some protections, but limited liability may be disregarded in some cases, leaving a director or shareholder responsible for paying the company debts.
For example, the following examples could all lead to a director or shareholder having to deal with a late commercial payment:
- Misconduct
- The presence of a personal guarantee
- Debts are caused by fraud
- Overdrawn director’s loan accounts
- Misfeasance
How can Butcher & Barlow help your business recover a debt?
Butcher & Barlow has played a vital role in assisting many businesses with the debt recovery process. Our expertise, experience, and resources make us a valuable partner in navigating the complex legal landscape surrounding business debt recovery.
Our in-depth understanding of the legal framework and regulations pertaining to debt recovery ensures that your businesses remain compliant while pursuing your debtors and helps us develop effective and lawful strategies tailored to the specific needs of your business.
Our team has the necessary skills and experience to handle negotiations and settlements with debtors. They are well-versed in the tactics used by debtors to evade payment and can, and will, employ various legal tools to maximize the chances of successful recovery. This includes sending demand letters, initiating legal proceedings, and, if necessary, representing your business in court.
We also have a level of objectivity and emotional detachment that can be beneficial in debt recovery. Business owners and managers may have personal relationships or emotional attachments with their debtors, making it difficult to handle negotiations. Debtors are also more likely to take legal action seriously when they realise that a business has enlisted the support of legal professionals.
Butcher & Barlow will bring essential expertise, legal knowledge, and professional representation to your business in the debt recovery process. Using a solicitor to recover a business debt increases the likelihood of successful debt collection, ensures compliance with legal requirements, and frees you up to focus on your core activities.
If your business has debtors, contact Asim Din on 01606 334309 or email at adin@butcher-barlow.co.uk and he will ensure that your business effectively navigates the complexities of debt recovery and safeguards financial stability.
Asim Din