Debt Collection – An Overview

Recovering a debt from someone who owes you money can be frustrating and challenging. The steps taken in the debt collection process depend on whether the debt is a business debt or a consumer debt, or whether you are a debt collection agency seeking to recover a debt for a client.

What is debt collection?

Debt collection is a process through which an individual or an organisation recovers a debt due to it. When all credit control actions have failed to encourage the debtor to pay, the next stage is usually formal debt collection.

When you decide to recover the debt yourself, there are defined steps you must follow. Debt collection agencies that deal with consumer debts are regulated by the Financial Conduct Authority.

The debt collection process

There is a process that must be followed in every debt collection. The steps you must take in relation to the debt collection process depend on whether the debt is a business-to-business debt or a business-to-consumer debt.

Business to business debt collection

The first stage in recovering a business to business debt is to have your solicitor send a Letter before Action to the debtor advising that unless the debt is settled, court proceedings will be raised.

Letter before Action

The Letter before Action should include:

• The amount of the debt and the date it was due
• The sender's name and address
• Copies of relevant documents
• A summary of the facts
• A clear explanation of the position and legal basis of the claim
• A time limit for the recipient to comply with the request
• Details of the steps the recipient must take to avoid legal action

The debtor should be afforded a period of 14 days in which to respond and settle the debt. If the debtor fails to respond positively to make arrangements for payment or fails to pay the debt on the expiry of 14 days, the next stage is to issue court proceedings.

Court proceedings

The proceedings for debt collection should include:

• A Claim form: A form that includes details of the debt
• A Response pack: A pack that includes forms to allow the debtor to respond to the claim

In addition, an Issue fee must be paid to the court to file the claim

If the debtor fails to file a defence within 14 days, you can then seek a judgement against the debtor.

Clearly, should the debtor defend the proceedings, a hearing will be required to resolve matters before any judgement can be issued.

Enforcing the judgement

Once you receive the judgement, you can enforce it against the debtor. Enforcement action can take the form of one or more of the following actions until the debt is settled:

• Arrangements for instalment payments
• Sending the Bailiffs or High Court Enforcement Officers (depending on the value of the debt)
• Serving a Charging Order
• Attaching earnings
• Seeking a Third party debt order
• Bankruptcy/winding up proceedings

Business-to-consumer debt collection

Before you can raise court proceedings in business-to-consumer debt collection, you must send a Letter of Claim to the debtor. This letter should contain the information and documentation contained in the pre-action protocol for debt claims. The letter of claim should include:

• the amount of the debt
• whether interest or other charges are continuing
• where the debt arises from an oral agreement, who made the agreement, what was agreed (including, as far as possible, what words were used) and when and where it was agreed
• where the debt arises from a written agreement, the date of the agreement, the parties to it and the fact that a copy of the written agreement can be requested from the creditor
• where the debt has been assigned, the details of the original debt and creditor, when it was assigned and to whom
• if regular instalments are currently being offered by or on behalf of the debtor, or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered
• details of how the debt can be paid (for example, the method of and address for payment) and details of how to proceed if the debtor wishes to discuss payment options
• the address to which the completed Reply Form should be sent

The debtor has 30 days to reply to the Letter of Claim. If the debtor fails to reply, you can then commence the recovery process.

If the debtor responds

If the debtor responds, they should use the standard Reply Form which you send with the Letter of Claim. The debtor can also request copies of documents they believe are relevant. You should not commence court proceedings less than 30 days from receipt of a completed Reply Form or 30 days from providing the debtor with any documents they request. Finally, if the debtor informs you they are seeking legal advice, you must allow them a reasonable period of time in which to do that.

Document disclosure

Both you and the debtor should exchange relevant documents as soon as possible. This will help each understand the other’s position. If you cannot provide any documents requested, you must explain why within 30 days of a request for these.

Seeking resolution and alternative dispute resolution (ADR)

It is important to try to seek a resolution to the matter before proceedings are raised. Alternatively, you may consider or suggest suitable ADR. It is important to note here that if the debtor reached an agreement which they subsequently breach, you must start this process from the beginning before issuing court proceedings.

Final Letter before Action and further procedure

If the debtor responds to the letter of claim but fails to reach agreement or settle the debt, you should give them at least 14 days’ notice of your intention to issue court proceedings. This procedure is identical to the procedure followed in a business to business debt recovery.

Final thoughts on debt collection

The debt collection process must be observed to ensure you stand the best chance of recovering the debt. Should you fail to follow the procedure prior to issuing proceedings, your claim will fail and you will be unlikely to receive judgement.

Follow the correct process, whether it be a business-to-business debt or a business-to-consumer debt and you will stand the best chance of receiving judgement to allow you to successfully recover of the debt due.