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Are you a Business Owed Money by an Individual or Sole Trader?

If you are a business owed money by an individual (including a sole trader) then if payment is not made you need to ensure that you follow the Pre-Action Protocol for Debt Claims which came into force on 1 October 2017 (although there are different Protocols for Construction and Engineering Debts and for Mortgage Arrears).

The Protocol requires a detailed Letter of Claim to be sent to the individual before Court proceedings are started which should include, for example:

(1)        The amount of the debt

(2)        Whether interest or other charges are continuing

(3)        Particulars of any oral or written Agreement on which the debt is based

(4)        If the debtor has offered instalments why they are not acceptable

(5)        Details of the method by which payment can be made to the business

(6)        Enclosing an up to date Statement of Account or the most recent one

(7)        Enclosing a Standard Information Sheet plus a Standard Reply Form and a Standard Financial Statement for completion.

Full details are set out in the Protocol which can be found on the website.

It is therefore no longer sufficient to simply write to the debtor with a copy of the outstanding invoice and then to start Court proceedings if they do not pay.

If the debtor does not pay in full or reply to the Letter of Claim within 30 days the business can start Court proceedings (unless they have any obligations to the contrary under, for example, the Financial Conduct Authority’s Handbook). However, 

if the debtor returns a completed Reply Form within 30 days the business should not start Court proceedings within the next 30 days or within 30 days from providing the debtor with any documents requested in the Reply Form, whichever is later.

The business should also allow the debtor a reasonable period to obtain debt advice if requested and, if the debtor requires time to pay, try to reach agreement for the debt to be paid by instalments, based on the debtor’s income and expenditure.

The parties are encouraged to try to resolve any dispute without resort to Court proceedings whether by agreeing a reasonable payment plan or considering using a form of Alternative Dispute Resolution (such as a without prejudice meeting, mediation or arbitration).

If you issue Court proceedings without complying with the Protocol the Court will take that into account when giving directions for the management of the proceedings (such as staying the Claim until the Protocol has been followed) and when making orders for costs (so could order the business to pay some or all of the costs of the individual/sole trader).

If you would like further advice about this or help to follow the Protocol please contact one of our Dispute Resolution Team on 01905 721600.

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