The new protocol for recovering a business debt


Dec 08, 2017


Business Advice

If you run your own business, it’s more than likely that you’ve had some experience of chasing late payments or claiming debt for unpaid invoices.

Going forwards, if you find yourself needing to recover a debt, you need to be aware of a new protocol which came into effect on 1 October 2017.

The aim of this new protocol is to avoid court proceedings.  It is called the ‘Pre-action Protocol for Debt Claims’, and it requires communication and an exchange of information between the parties involved, so that a dispute may be resolved without the need for going to court.  It also encourages parties to consider ‘Alternative Dispute Resolution’ prior to the start of any court proceedings.


How is the new debt protocol different?

The new rules apply to businesses claiming a debt from a consumer (an individual or a sole trader). They do not cover business-to-business debts (unless the debtor is a sole trader).

The main difference is the increase in timescales now involved in settling a debt.  As a creditor, you could previously send a 7-day letter of claim to your debtor, which you could then follow up by issuing court proceedings.  Thanks to the new protocol, your debtor now has much more time before they are required to make payment.   The letter of claim should now give them 30 days to respond, and a further 30 days to discuss the debt and reach an agreement.


What’s required?

Under the new protocol, a letter of claim must now include the following:

  • An up-to-date statement of account for the debt owed, including any interest or other charges incurred
  • Full details of the debt agreement, whether it be a written contract (in which case you should enclose a copy), or a verbal agreement
  • Details of any assignment of the debt
  • Details of any regular instalments that have been offered by the debtor, with reasons why this is not acceptable to the creditor
  • Details of how the debt can be paid, and what the debtor needs to do if they want to discuss payment options
  • An information sheet and reply form (found in Annex 1 of the protocol)

The letter must be dated, and posted out the same day or the following day.



Your debtor has 30 days to respond to the letter of claim and return the reply form.  After this, you and your debtor then have a further 30 days to discuss the debt and see if you can reach an agreement without going to court.  If you can’t reach an agreement, or if you don’t receive a response to your letter within 30 days, then you may proceed with legal action but only after you’ve given your debtor at least 14 days’ notice of your intention to begin court proceedings.

If the debtor indicates in their reply form that they are seeking legal advice, then they must be allowed a reasonable period of time to do so.  In this instance the 30 day discussion period can be extended.


What happens if I don’t comply?

If you risk not complying with the new protocol, then this may lead to sanctions being imposed on you.  The court could stay proceedings until the protocol has been adhered to, or make a costs order against you.


Please contact us if you would like more information about chasing payments and managing your cash flow.