The debt collection process involves four main stages: a late payment demand or letter before action, followed by court action, then the issuing of a judgement, and finally enforcement.
First, the debtor will receive a late payment demand or letter before action from the creditor in the form of a letter that states the value of the outstanding debt. This letter also informs the debtor that the creditor reserves the right to pursue court action if the debt goes unpaid. In many cases, the debt will be paid when a late payment demand is received, and the debt collection process need not occur.
If the debt goes unpaid, further legal action can be taken by the creditor in the form of a claim form filed with the County Court. The Court will then give the debtor a fixed amount of time to pay.
If the debt still is not paid after this time has elapsed, the Court will issue a Judgement. Once a Judgement has been issued, the debt can be collected through enforcement, by a Bailiff or Enforcement Officer.
Letter Before Action
If you are trying to collect a debt from a debtor, you can send them a letter of action. This is a formal letter that states the value of the debt and informs the debtor that court action may be taken if they do not pay the debt within seven days.
If, after seven days, the debt has still not been paid, you have the legal right to pursue court action knowing that the debtor has been forewarned.
Late Payment Demand
Alternatively, a late payment demand allows you to charge interest to the debtor for each day the payment is overdue. You may also use a late payment demand to charge compensation against the debtor if the payment is overdue by one day or more.
You may send a late payment demand provided that both the creditor and debtor were acting in the course of business.
If an invoice is overdue, you may charge interest at an annual rate of 8% over the base rate for each day that the payment is overdue.
The compensation that you are entitled to will vary from £40 to £100 depending on the size of the unpaid debt.
If the debt is still unpaid after a letter of action has been sent, your next step is to take court action. You will need to send a court form to the debtor.
The County Court will serve a claim form to the debtor, who will then have 14 days to either pay the debt, enter negotiations to settle, or defend the action.
If the debtor has not responded after 14 days, a County Court Judgement can be issued.
County Court Judgement and Enforcement
If the debtor has not responded to the claim form issued by the County Court by either paying the debt, or filing a defence, the next step available to the creditor is to issue a County Court Judgement.
A County Court Judgement can be enforced by a Bailiff or an Enforcement Officer, depending on the size of the debt.
Typically, if the debt is less than £600, the court will instruct a local County Court Bailiff to collect. If the debt is greater than £600, enforcement will be carried out by the High Court Enforcement Officer.
The Bailiff or Enforcement Officer will obtain access to the debtor’s premises and request payment directly from the debtor if they can be found. If the debt cannot be obtained directly from the debtor, the Bailiff or Enforcement Officer will take control of assets to the value of the outstanding debt from the debtor’s premises.
A failure to pay the County Court Judgement within one month will be registered and will impact the debtor’s credit rating. This gives the debtor a strong incentive to pay back the debt as soon as possible.