As many of you will no doubt already be aware, the Ministry of Justice has released a new Pre-Action Protocol for Debt Claims that comes into effect on October 1st, 2017.
Whenever these kinds of changes are made it’s natural to have questions, and we’re going to do our best to answer some of them for you today;
Who does this new protocol apply to?
This protocol applies to all claims by a business for payment of a debt by an individual. This could be individual borrowers, tenants, trustees and so forth. Basically, any individual who owes a non-business to business debt is covered by the new rules.
The only instance where this protocol will apply to a business to business debt is in a situation where the debtor is a sole trader. If the debt is owed by a company or a partnership then the new protocol wouldn’t apply.
Why has the new protocol been introduced?
According to the Government, the aims of this new procedure are to encourage early engagement and communications between both parties, and to increase the chances of the issue being resolved without the need for court proceedings. This can include a reasonable repayment plan or use of an Alternative Dispute Resolution procedure.
Another key reason for the introduction of this new procedure is to encourage both parties to act in a reasonable manner and to try to avoid the running up of costs which aren’t reasonable in relation to the sums owed.
What can I do to be prepared for these changes?
Perhaps the most important question of all.
The first port of call should be to educate yourself on the changes, which means making sure you have access to the required information. This protocol will require a bit more information to be included in the Letter Before Claim, so it’s important that you are familiar with this information before the date of implementation, and that you make any necessary changes to your own systems before that date.
You should also keep your staff fully informed of any changes that they may have to make to their own records and practices. Getting ahead of this and making sure they’re fully briefed will help to avoid any transitional issues later on down the line.
You should consider asking yourself if your current credit policies will prove worthwhile after the changes come into effect. Will it be cost-effective to consider legal action in cases where the debtor is a sole trader or individual? In instances where you are offering credit to customers who fall under the umbrella of this new protocol, it may be worth making changes to your terms and conditions of issue and altering the requirements that those customers have to meet. This will help reduce the chances of debt recovery.
And finally, you have to start separating sole traders and individuals from companies and partnerships on your account records. This will assist you in applying the new protocol to the correct clients if & when the time comes to pursue an outstanding debt.
Another important step that you should take is speaking to your debt recovery solicitor.
In most cases, a quality debt recovery solicitor will already be taking the required steps to implement this new protocol smoothly into their procedures, but you should certainly double check that this is the case.
If the correct steps are taken before the October 1st implementation date you shouldn’t face any real issues. It’s just a case of making sure you’re ready.
If you consider yourself the kind of business that dreads having to deal with customers or clients who have an outstanding account or an unpaid bill that needs collecting, trust me, you’re not alone.
No one likes to risk destroying customer goodwill by having to demand payment, but in many cases, there is no other option.
Before you find yourself having to go down that route though, there are steps you can take beforehand to try and avoid the situation escalating to such a level.
Ensuring that payment due by dates and terms are clear, and also indicating any interest that will be applicable if payment isn’t made by the date agreed will go a long way to helping this part of your business run a lot smoother.
Even taking these steps can’t guarantee that you won’t run into issues, and when that happens you’ll want to take an approach that is both firm, yet doesn’t run the risk of souring relations with a valued client or customer.
Step 1 – Keep It Friendly & Informal
The first step should be to issue a short, friendly reminder along with another copy of the invoice. Many times an unpaid bill can be a result of the client simply forgetting. We all know that running a business is time-consuming, and it’s easy to forget what needs paying on what date. Many times this will result in an apology and payment being made, which is the ideal outcome.
If payment isn’t made within a few days of the letter being delivered, a more direct approach may be required.
Step 2 – Be More Direct
Your second letter should be a bit more formal, and with directness replacing the friendly tone of the first notice you sent them. At this point, the failure to pay what is owed can’t be put down to forgetfulness.
Step 3 – Introduce The Threat Of Legal Action
If payment still isn’t forthcoming, you’re going to have to get tougher, laying out a set date by which payment must be made otherwise legal action may be the result. Usually, payment within seven days is a more than reasonable demand, giving the client time to read the letter and act upon it.
Step 4 – Issue A Final Notice
If the threat of legal action hasn’t prompted payment to be made, then you issue a final notice demanding payment and setting a date whereby legal proceedings will be launched against them.
One piece of advice that will prove valuable is to not lose your composure when writing these letters. It won’t do you any good to make empty threats, and in many cases, these threats can be used against you by the client.
Keep it professional, and to the point.
No one enjoys going through this procedure when dealing with a client who hasn’t paid what is owed. It can be emotionally draining, and also takes valuable time away from your business and other customers.
Usually, the best option is going directly to a reputable debt collection company who can take the stress and hassle away from you. They also have far more experience in these matters and know how to approach such clients in a manner that will see a speedy and satisfying result.
All you can do is try to be as fair and as reasonable as possible.
Are you claiming debts from individuals or sole traders?
More about the Pre-Action Protocol for Debt Claims
Let’s be honest; no one really enjoys invoicing. It’s monotonous and takes up time that you could be spending on other aspects of your business.
But, it’s a necessity. And if you have to do it, you’d better do it correctly, as it’ll save you headaches later on down the line.
In many instances, a business chasing a client who isn’t returning calls, or even having to go down the route of issuing a late payment demand could have avoided the situation by taking a little more time on their invoicing procedure.
This checklist will provide you with a solid base to ensure that your invoicing goes as smoothly as possible.
Check you’ve included all of the relevant information on your invoice
You’d be surprised at the number of businesses that put very little thought into the information they provide on their invoices.
First of all, make sure that the word “invoice” is clearly displayed on the documentation that you send them. That may sound pretty self-explanatory, but it can be easy to get so caught up in the numbers and payment terms that you don’t include the word on the document.
Double check your own company name, address and contact information, and be sure to issue a unique reference number on every invoice you send out.
Clearly describe the services or goods that you’re invoicing the client for, as well as displaying the date, the amount owed and the date payment has to be made by.
Keep on top of the situation
Don’t just create an invoice, send it out and then forget about it until the day of expected payment. If you’ve forgotten about it, there’s a good chance your client may have as well.
Send out the invoice, and then follow up five or so working days before the due date with a nice little email reminding your client that payment is almost due.
Sometimes a friendly reminder beforehand allows for a bit of planning on your client’s end. Let’s face it, people get busy, and sometimes it’s easy to lose track of the days or get swamped with work.
Create payment terms, and stick to them
Your invoice should include your payment terms written clearly and in an easy to understand way. When you indicate a specific number of days before payment becomes overdue be sure to specify if you mean business days, and don’t be afraid to be firm when it comes to enforcing the terms of payment.
Politeness and patience can go a long way when dealing with customers and clients, but there will be occasions where you have to be firm and to the point.
Sometimes, no matter how much you put into creating a perfect invoice, you’ll come across a customer who simply doesn’t want to pay.
When that happens, you could be left with no other option than legal recourse.
Did you accidentally overpay a former employee?
Most companies simply don’t have the resources or time to chase overdue payments, and it’s at this stage that a reputable debt collection company can be worth their weight in gold.
Are you claiming debts from individuals or sole traders?
Watch the video!
More about the Pre-Action Protocol for Debt Claims
As any company knows, late payments can have a devastating effect on operational functions. Whilst businesses must receive payment in full in order to remain profitable, they must also receive the funds in a timely manner to ensure that they can continue to operate.
Business debt collection can be complicated. In addition to implementing the relevant late payment laws, companies must find a way to encourage clients to pay their debts in full, rather than accepting a partial or token payment.
However, there are methods which can enable you to recover your business debts satisfactorily. A winding up petition, for example, requests that the courts close a business if it cannot pay its debts.
Providing you are owed £750 or more and the company is genuinely unable to make the payments, a winding up petition can result in the company being closed, its assets being sold and the subsequent money can then be passed on to creditors.
How Else Can A Business Recover Debts?
If the business in question is simply refusing to pay an invoice, rather than being unable to pay their debts, then a winding up petition won’t be a suitable solution. Instead, you may need to consider an alternative form of debt recovery.
A letter before action or a solicitor’s letter could be used to show your intention to take the matter to court unless it is resolved. Whilst you may not want to resort to litigation, taking a strong stance against late payments could ensure that the debt is paid quickly.
If the dispute is on-going, you may consider referring the matter to an arbitrator where a neutral third party will make a decision about the matter. There will need to be an arbitration clause in the contract or the parties will need to agree to arbitrate. If the matter is resolved via arbitration, an award will be made and the client must adhere to the ruling. As a form of alternative dispute resolution, arbitration can be used instead of going to court and it’s often a quicker and cheaper way to recover your debts.
Enforcing Debt Recovery
UK and international debt recovery can be time-consuming for businesses. With various debt collection options available, it may be difficult to determine which method of debt resolution is the most appropriate in any given circumstance.
Instead of increasing organisational costs by managing these issues in-house, you may want to consider accessing professional help. By outsourcing your debt recovery, you can ensure that clients adhere to their contractual terms and that your business doesn’t suffer as a result of late payments and debts.
While no business can benefit from late payments, a delay in incoming revenue can be disastrous for small or medium sized companies. With many SMEs relying on continuous cashflow, unpaid debts can affect the operation of the business as a whole.
As many SMEs don’t have the capacity to employ in-house debt recovery experts, they can find it difficult to resolve the issue of late payments. As a result, their business can face financing problems and may even be forced to suspend or cease trading.
Getting Expert Help
Fortunately, there is help available for SMEs. Rather than attempting to process debt collection in-house, they can access professional assistance by outsourcing.
With various dispute resolution options available to SMEs, professional debt experts can ensure that businesses are able to recover their debts swiftly. Whether a letter before action is required or a winding up petition needs to be issued, using an experienced debt recovery firm can ensure that the matter is handled appropriately and effectively.
Minimising Downtime
If on-going late payments are impeding your cashflow and resulting in operational delays, it’s essential to obtain payment quickly. By referring the matter to debt recovery solicitors, you may find that the debtor responds more quickly to your demands.
A solicitor’s letter, for example, can be far more effective at motivating a debtor to pay their outstanding bills, than a standard business letter or invoice reminder.
Reducing Costs
Unfortunately, SMEs without experience in debt recovery may think taking a client to court is the only option to recover their funds. However, this can be an expensive and acrimonious process.
Experienced debt collection professionals will identify alternative solutions which can help you to avoid commercial litigation. Rather than engaging in a costly and time-consuming court battle, you can use debt recovery services to resolve the problem far more quickly and with less impact on your business functions.
Building an in-house debt recovery team can be a costly and unnecessary process for many businesses. Rather than add to operational costs, why not employ the services of experienced UK and international debt recovery solicitors as and when you need them? This can reduce costs and resolve the issue of late payments, while enabling your business to run efficiently and profitably.
How can I claim late payment interest, compensation and costs? Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
Commercial disputes can prove costly for all types of businesses. Whether you operate as a sole trader, an SME or as a multinational corporation, resolving disputes quickly is key to maintaining good cashflow and the ongoing success of the business. Whilst disputes can arise over any type of business transaction, issues relating to goods or services supplied commonly arise when you start chasing your client or customer for outstanding payments.
In such cases, it’s essential that the dispute is resolved quickly. If payment remains outstanding over a significant period of time or the dispute escalates and creates bad blood between you and your customer, your business could suffer catastrophic harm. SMEs, in particular, can struggle to operate if regular late payments occur or if incoming funds aren’t received on time.
Is court really the right option?
Going to court may seem like an ideal solution if a client has failed to pay a bill or broken the terms of the contract. However, taking a case to court can be costly and time-consuming. In addition to paying court fees, it’s likely that you’ll need to pay expensive bills for legal representation. In some cases, the cost of going to court may be higher than the money you’re hoping to recover and it could take up to 2 years to get to trial in some cases.
Alternative Dispute Resolution for businesses
Fortunately, going to court isn’t the only way to resolve a commercial disagreement. Alternative dispute resolution (ADR) provides a range of methods when it comes to commercial litigation and debt recovery.
Negotiation, mediation and conciliation allow the parties to come together and find a solution to the issue, often with the use of an impartial person to manage the meetings. Mediation has a high success rate. A skilled mediator can often help the parties find a solution even when the parties themselves initially felt there was no chance. However, if this doesn’t seem like a viable way to resolve potentially acrimonious disputes, the options of arbitration or adjudication could provide an ideal way for the issue to be dealt with swiftly if the terms of your contract allow such options.
How can I claim late payment interest, compensation and costs?
With court being seen as a last resort, ADR provides a cost-effective way for businesses to resolve disputes. As less contentious forms of dispute resolution, negotiation, mediation or conciliation may even enable you to foster an on-going business relationship with the client.
If you need help enforcing late payment law or you require help with UK and international debt recovery, don’t head straight for the court system. Using ADR could help you to resolve your disputes efficiently and effectively, whilst reducing your business costs.
10 Tips for Effective Debt Collection:
A Free Guide
Recruitment agencies can suffer from the actions of those clients who try to avoid paying their invoices on-time or at all. Here are four factors you may experience.
1. Weekly timesheets
Temporary or contract workers who are assigned to jobs by your agency are required to submit timesheets showing the number of hours worked so that you can calculate the pay they are owed each week. But a number of problems can arise with timesheets:
- The employer’s representative may not sign the timesheet → if you receive an unsigned timesheet take additional steps to validate the hours by emailing the customer
- The number of hours claimed may be incorrect → ensure your Terms & Conditions (T&C’s) make it clear that hours recorded on the timesheet will be deemed correct
- The performance of the worker may be deemed to be unacceptable → ensure your T&C’s make it clear that you are acting as an agent, offer no guarantees as to the performance of the worker and set out the procedure for your customer if they are dissatisfied with the work.
In all of these circumstances the employer may try to get out of paying the agency. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
2. Dispute over the job role
In some cases, an employer may take on a worker for a permanent role for which they were originally not put forward. This can mean that the hourly rate due to the employee may be higher than that paid for the original role.
In effect, the employer is getting a more expensive contractor than they paid for. Although the employee won’t be out of pocket, your agency could be → ensure remuneration is clearly defined in the T&C’s for the purposes of calculating the introduction fee.
3. Dispute over payment for a temp to permanent appointment
There may be occasions when you supply a temporary or contract worker to a company for a set period. On conclusion of that period the employer decides to make that person a permanent employee. In these circumstances it is usual for the employer to pay the agency a finder’s fee and this should be included in the original contractual agreement → ensure the T&C’s set out the Transfer Fees payable when a candidate goes from temporary to permanent and define the qualifying period for payment of a fee when a temporary worker is supplied.
However, some unscrupulous employers may seek to take on temporary staff permanently without telling the agency, thus avoiding the fee.
4. Disputes concerning the original finder of an employee
Sometimes disputes arise because the employer has found the successful applicant via more than one channel. In these circumstances, the employer may refuse to pay the agency a finder’s fee and will say that they found the staff member through an alternative source → ensure the date on which a candidate is first introduced to the customer is documented in case a dispute arises.
5. How a professional debt recovery firm can help
If your recruitment agency has suffered from any of the above situations and you’ve been unable to recover the money you are due, you should speak to a solicitor who specialises in debt recovery without delay. Through a process of letters and telephone calls, an experienced solicitor uses contractual law to ensure that you receive the money you are owed in full.
Collecting payment from clients can become problematic, even for the most financially wise companies. A client could simply refuse to pay, or they might take an unfair advantage of the friendly relationship you have built with them. Either way, it can be difficult to force the payment with a fear of ruining your relationship or losing their custom. However, outsourcing your debt recovery can be a solution. Here are our top three reasons why you should seek assistance and top advice from debt recovery solicitors’ specialists.
1. Time is of the essence
When a payment becomes overdue, it’s important that you act quickly to collect. The longer it takes for a debt to be recovered, the more difficult the process of recovering becomes. However, in the world of business that time moves fast, and sometimes we feel like there aren’t enough hours in the day to deal with everything. Your time is better spent on providing a brilliant service to your customers, so leave the payment chasing to a debt collection specialist.
2. Cost-effective
Outsourcing your debt recovery can help reduce your costs as you will stop spending money on overheads such as employing extra staff to chase payment. When you use debt collection solicitors, there is a higher success rate of recovering money. Customers are more likely to pay if they receive a letter from a solicitor. This is often because they know that the threat of legal proceedings is serious enough to provide sufficient motivation to ensure the debtor makes payment of your debt a top priority. Get Lovetts 10 free tips for effective debt collection here and drastically improve your credit control procedures.
3. Expertise
Debt collection solicitors have the necessary skills and expertise required to maximise the collection of outstanding debts. When you outsource your debt recovery needs, you will be offered a tailored service specific to you and your business’ needs. You will also be receiving a service from people who have vast experience in the field, so you can feel confident in their ability.
Seeking the assistance of a debt recovery specialist is efficient, stress-free, cost-effective and beneficial rather than trying to pursue debtors yourself.
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• Comprehensive reporting
• Download case documents (letters, email, etc)
Usually when a company owes a debt, their creditor can file court proceedings against them in the hope that they will pay – and use a method of enforcement to recover the money if not. However some circumstances, such as a debtor refusing to engage, make this method of debt recovery an unsuitable option. This is where strong action is needed: A Draft Winding Up Petition (WUP).
What is the difference between a Winding Up Petition and a Draft?
A Winding Up Petition is a petition sent to Court to wind up a company that cannot pay an undisputed debt. A company who cannot pay a debt on demand is deemed insolvent, and this petition starts the process of liquidating them. If a company refuses to engage with their creditor about any outstanding amounts, threatening liquidation is a good weapon for debt collection.
The creditor can ask a solicitor to create a WUP, but hold off on serving it formally. It will be sent only to the debtor with an accompanying letter warning them that if they do not settle the debt within a set time period (usually seven days) then the petition will be submitted at Court. This is known as a Draft-Winding Up Petition. The debtor will be motivated to avoid Court and liquidation, and Lovetts have found that 81% of Draft-Winding Up Petitions result in full payment of the debt.
How can I claim late payment interest, compensation and costs?
What happens when a Winding Up Petition is formally served?
If a Draft-WUP did not achieve the desired effect, the next step is to go to Court. This is the process followed in that situation:
1. The petition is presented (i.e. sent to Court for a hearing date to be given)
2. The petition is served on the company’s registered office
3. After at least 7 days has passed (but at least 7 days before the hearing is due), the Winding Up is advertised in the London Gazette.
4. Once the Winding Up has been advertised, the debtor’s bank will freeze all company accounts. This effectively prevents them from continuing to trade.
5. At the hearing, the Judge will hear the petition and make a Winding Up Order against the debtor unless they provide a defence or prove they can pay the debt.
6. Once the Order has been made, the official receiver will start the process of liquidating the company and distributing the assets to the creditors.
7. The directors of the company being wound up will be investigated for any wrongful trading. If they are found to have been accepting credit with no expectation of being able to pay it back, they may be found personally liable for certain debts.
When a company goes into liquidation, there is an order of priority when it comes to the distribution of assets.
There are certain criteria to meet before sending the Petition:
– The debt must be a at least £750. Usually this debt recovery option is used when the debt is much larger than this due to the legal fees involved.
– The debt must be undisputed. If the debt is disputed, this may result in an injunction against the petitioner, the petition being thrown out of Court and the creditor being ordered to pay the other side’s legal costs.
– The debtor must be a company, not an individual. The bankruptcy procedure is slightly different for an individual.
At Lovetts we have found the Draft-WUP is much more effective than a Statutory Demand, resulting in payment 81% of the time. Not only does it come with the threat of being liquidated, it also provides only 7 days to take action whereas the Stat Demand gives the debtor a full 21 days to continue delaying payment.
Is chasing late payments getting in the way of your other business priorities? Our handy free guide will provide you with 10 tips and insights to help you reduce those issues. DOWNLOAD FREE
In 2016, the UAE oil crisis led to job cuts and a slump in the tourism industry. Significantly, the Persian Gulf nation has seen its consumer bad debts rise, a situation that has fueled the recent increased scrutiny on debt recovery agencies. To mitigate the financial crisis, the UAE credit bureau instituted new credit policies to limit delinquencies in the small and medium enterprise sectors. In this guide, we will address the intricacies of debt collection in the United Arab Emirates.
General Information
Although payment terms in the UAE are typically 30 days, 60-day payment terms are not uncommon. Larger entities such as major oil and gas companies usually have shorter DSOs (Days Sales Outstanding) than smaller to mid-sized companies. In 2015, the average DSO for small and mid-sized companies was 91 and 93 days respectively, while the average DSO for large and mega-sized companies was 80 and 62 days respectively.
Until 2016, debt collection specialists in the UAE had few options for dealing with defaults. However, the UAE debuted its first comprehensive bankruptcy legislation on 29 September 2016, replacing the older Commercial Transactions Law (UAE Federal Law No. 18 of 1993). The new law repeals Chapter V of the 1993 Commercial Code, which encapsulated the rules that govern the current insolvency system. Some important provisions include:
- the appointment of a new debt restructuring committee known as the Committee of Financial Restructuring.
Among other duties, the committee is responsible for supervising the financial restructuring process outside the judicial scope, appointing financial restructuring experts, maintaining an electronic record of individuals who have been issued bankruptcy rulings, sponsoring initiatives that raise public awareness about the law’s objectives, producing periodical reports about the law’s achievements, and proposing amendments to the law.
- the establishment of a new minimum threshold (AED 100,000) for creditor-initiated bankruptcy proceedings. The old law allowed creditors to apply for insolvency proceedings against debtors regardless of debt amounts.
- the rescinding of provisions in the 1993 Commercial Code that criminalized debtor defaults. In recent years, debt-ridden proprietors of small to mid-sized businesses have chosen to flee the country rather than to endure jail time for their defaults. In some cases, foreign owners of these businesses are still liable for their debts in the country of their origin. For example, Indian debtors who flee the UAE can be arrested in another country that has extradition treaties with the Persian Gulf nation.
- the establishment of three procedures for a struggling business: protective composition (a debtor-led court process that allows debtors to apply for a protective arrangement to avoid bankruptcy), insolvency with restructuring (applied to when a company can be salvaged), and insolvency with liquidation (applied to when a company is beyond salvage or a debtor fails to make a good-faith effort to fulfill financial obligations). It should be noted that a protective composition must be agreed upon by two-thirds of the creditors and that 50% of the debt must be repaid within three years.
The Benefits of Having An Experienced International Debt Collector
Ensure the debt collectors you use have extensive experience of international debt collection. For example Lovetts has trusted agents abroad, so they can contract debtors, such as those in the UAE, in their own language.
Collection Practices and Court Proceedings
The legal system in the UAE is based on Shariah and civil law. However, the majority of commercial cases are adjudicated in civil law courts. Additionally, the UAE also has civil law courts with jurisdiction in established Free Zones. At present, there are no less than 45 Free Zones in the country. Free Zones such as the Dubai International Financial Center are empowered to create unique legal frameworks for civil and commercial matters. To date, creditors in the UAE have recourse to:
- amicable negotiations before a Reconciliation and Settlement Committee, a process which begins with a demand letter recalling the debtor to his financial obligations.
- ordinary court proceedings, which requires debtors to meet their obligations within 15 days of being issued a summons, provided that they have not raised a defense against the proceedings. It must be noted, however, that injunctive relief and attachment orders are extremely difficult to obtain against UAE nationals. Creditors must prove beyond a reasonable doubt that there is substantial risk for dissolution of assets on the debtor’s part before judges will consider granting attachment orders or injunctive relief. Additionally, all court proceedings are in Arabic, which reinforces the necessity of relying on local UAE solicitor agents.
- Arbitration through Alternative Dispute Resolutions, which may prove risky for creditors, as monetary awards cannot be legally enforced.
- Foreign judgments, which will only be applied if they correspond to UAE domestic judgments. These corresponding judgments are usually based upon precepts dictated by bilateral enforcement treaties.
Insolvency Proceedings
In the UAE, insolvency or debt recovery proceedings begin in the Court of First Instance. After the court issues a judgment, the parties have the right to appeal to the Court of Appeals within 30 days. In the Court of Appeals, the parties are allowed to introduce additional witnesses and evidence to bolster their arguments. The judgment of the Court of Appeals stands unless the parties further appeal to the Court of Cassation within 30 days. Any judgment by the Court of Cassation is final, so creditors should carefully assess the ability of debtors to meet their financial obligations before they proceed with costly litigation.
It should also be noted that all creditors must submit their claims to the liquidator within 10 days of any published bankruptcy ruling. The liquidator will then rank creditors according to their claims and distribute awards accordingly.