Cookies are used on this website. Click here to read our Cookies Policy.


New Procedure for Debt Claims coming into effect 1 October 2017

There are many reasons why people do not always pay their bills - they may have an issue with service, misunderstand the terms initially laid out or simply not have the money to pay the bill.

Currently, if an individual owes money to a business then that company should, in accordance with the pre action protocol, send a letter before claim setting out what they believe is owed, reasons why it is, what documents they seek to rely upon and the time period for the debtor to respond. If no response is received, the business can then issue a claim without any further notice to that individual to which a failure to respond could increase the risk that they will be on the receiving end of a costs order.

Often a letter before claim can encourage payment where an individual is paying only those who shout the loudest. Alternatively it may prompt a response detailing what the actual issue with payment is, so it can be dealt with.

As it stands already, when a company has to send out a letter before claim, as a matter of last resort after the credit control procedure has been exhausted, it can have a devastating impact upon the company’s cash flow. However, the process of a company bringing a claim against an individual for non payment of a debt is due to become even more complex due to the new protocol.


The New Protocol


Any business, be it a limited company, partnership, public body or sole trader should be observing the new protocol in respect of any debt claims they seek to bring from 1 October 2017.

This protocol is specific to debts owed by individuals to businesses only. It does not apply to specialist areas that benefit from their own protocols, such as possession claims or construction disputes, nor does it apply to debts owed by companies to other companies.

The aim of the new protocol, much like all the others in force, is to encourage the parties to engage with one another in an open fashion, so as to resolve the dispute as swiftly and efficiently as possible. It also makes reference to alternative dispute resolution tactics and encourages parties to deal with one another in a reasonable and proportionate manner, in accordance with the sum in issue. So far then, so good! However, there is some bad news….

The most dramatic effect of the new regime is that it is much more prescriptive about how a business should seek payment from a debtor, requiring the business creditor to set out in a letter of claim:

  • an up to date statement of account, including any interest claimed
  • any administrative charges
  • an information sheet as set out in the protocol
  • a reply form for the debtor to complete and return.

It should also specify the agreement from which the debt arises, or the date of any oral agreement, as well as the circumstances surrounding the agreement. If the agreement is written, the letter must specify that a copy will be provided to the debtor if requested. As a matter of good order, I would recommend enclosing any agreement on which one seeks to rely, as well as copy invoices. If the debt has been assigned, particulars of the original agreement and the assignment must also be given.

If instalments have been agreed, reference must be made to this and why the agreement for instalments is not acceptable. Details of how the debt may be paid should be included such as account details and where any correspondence should be sent. If there is no reply at all, a claim may then be issued.

On the other hand if there is a reply, even if it could be considered a poor reply, the onus is upon the business creditor to seek out a more cogent response before issuing proceedings.

If the debtor seeks extra time to obtain advice, further reasonable time must be provided to allow the debtor to do so and proceedings should not be issued less than 30 days from the date of the reply, or from the business creditor being asked to provide documents, whichever is the latter.

In addition, the new protocol requires the business creditor to try and reach an agreement for payment by instalments, which is hardly an ideal commercial situation. The schedule of payments will be based upon the debtor’s financial situation and it is not clear at this stage how a creditor would establish the income and assets held by a debtor. A formal written response to a request for payments by instalments, including reasons why it is not acceptable should be provided to the debtor before issuing proceedings.

If the debt is disputed, a new process has been put in place that requires the parties to exchange information, almost akin to pre action disclosure to see if matters may be resolved early. A debtor then may require a business credit to set out their case and provide documents or a reason why they cannot be produced within 30 days of the request.

If, after this stage no agreement is reached, a creditor should give a minimum of 14 days notice of the intention to commence court proceedings.


What does this mean?


All in all then the process is more onerous & is likely to make the timescale for debt collection all the longer, which is not good news in the current economic climate.

Businesses will have to wait longer before issuing proceedings and, before that time will have to use precious time and resources providing much more in terms of information and procedural forms than they do at the present time. For a lot of businesses, this extra work and time may discourage them from chasing debts, on a costs benefit analysis basis, especially with the new requirement to consider instalment timetables by way of settling the debt, essentially acting as a loan company to those who can’t afford to pay. It may also be that the sheer number of documents provided to an individual who may be in debt may serve only to intimidate them. The hope however is that the new protocol will encourage parties, at an early stage, to share the issues and in that way, resolve them together.

If the protocol is not observed businesses may miss out on an opportunity to engage with their debtors and understand at the earliest opportunity any potential issues, so they can amend any internal business practices to streamline/perfect the billing process. The worst case scenario is that any claim subsequently brought could be struck out, leaving the debt unpaid and the business creditor on the receiving end of a costs order, and responsible for their own costs.

Although the process may now be a little more arduous, it could serve to offer more opportunities for parties to reach settlement prior to the issuing of proceedings & without the stress and cost associated with litigation.


For more information on property litigation, please contact us:

General Enquiries:


T: 020 7625 4424


Bookmark and Share