Legal Guides

We use plain and simple English to give you an overview of the most common areas of law.

A quick guide to debt recovery for businesses

One of the risks to businesses is that not all customers will pay on time.  If this happens, the outstanding debt will need to be recovered.  The first thing to consider is how to start the recovery process.

Where to begin

There are various pre-action protocols, which can be found online.  These should be followed before commencing formal court action.

The debt recovery protocol applies to any business claiming payment of a debt from an individual (including a sole trader) and describes the conduct the court will normally expect of the parties prior to the start of proceedings.

“Creditor” – the business recovering the debt

“Debtor” – a person / sole trader that owes money to the other party

Letter of Claim

The creditor should send a Letter of Claim to the debtor before proceedings commence which should contain the following:

  1. the amount of the debt and whether interest or other charges are continuing
  2. where the debt arises from an oral agreement, the parties to the agreement, what was agreed and when and where it was agreed
  3. where the debt arises from a written agreement, the date of the agreement, the parties involved and the fact that a copy of the written agreement can be requested from the creditor
  4. details of how the debt can be paid, including the method of and address for payment and details of how to proceed if the debtor wishes to discuss payment options
  5. the address to which the completed Reply Form should be sent.

You should enclose with the Letter of Claim the following:

  1. the most recent statement of account for the debt,  State in the Letter of Claim the amount of interest incurred and any admin or other charges imposed since that statement of account was issued, in order to bring it up to date
  2. a copy of the Information Sheet and the Reply Form at Annex 1 to the protocol
  3. a Financial Statement form (an example Financial Statement is provided in Annex 2 to the protocol).

The Letter of Claim should be clearly dated on the top of the first page and posted either on the day it is dated or, if that is not reasonably possible, the following day.

Except where the debtor has requested otherwise, the Letter of Claim should be sent by post. If the creditor has additional contact details for the debtor, eg email address, the creditor may also send the Letter of Claim using those details.

If the debtor does not reply to the Letter of Claim within 30 days of the date at the top of the letter, the creditor may start court proceedings.

Bankruptcy / Winding up Proceedings

As an alternative to commencing standard debt recovery proceedings, it might be possible to commence bankruptcy, or winding up proceedings. The criteria for commencing bankruptcy or winding up proceedings will, however, need to be satisfied and it may not be appropriate to instigate bankruptcy proceedings where the debtor has grounds for disputing the debt.

Author: Christian Browne, Summerfield Browne Solicitors

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. It is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to Summerfield Browne Solicitors directly.

Published on 24th June 2019
(Last updated 7th May 2021)