What Is Commercial Debt Recovery?

Commercial debt recovery is the legal process businesses use to reclaim outstanding debts from other companies or individuals. Dealing with commercial debt disputes can cause businesses a significant amount of stress whilst also affecting their cash flow and bottom line.

When overdue invoices and other debts remain unpaid, companies can face significant financial strain, affecting their ability to pay suppliers or meet their operational costs. Effective debt recovery is therefore essential to maintaining cash flow and ensuring long-term financial stability.

Our commercial debt specialists at AFG Law can assist businesses in the recovery and enforcement of debts owed to them. As a law firm, we can ensure that in the event a debtor fails to pay, that aside from making requests for payment, that legal enforcement processes are applied through the Courts to ensure no further delay is encountered in recovering your outstanding charges. If you would like more information on the debt recovery process or how our team can help then please do not hesitate to get in touch today using the contact details at the bottom of this page.

Pre-Action Steps: Chasing Payment Effectively

The pre-action protocol for debt claims encourages for commercial debt recovery disputes to be resolved before initiating official legal action. Sending informal reminder letters to the debtor can often encourage payment of outstanding debt however, if there is no response, then a more formal Letter Before Action (LBA) can be issued. It is at this juncture that you may want the input of legal representation in your commercial debt recovery dispute, to ensure your Letter before Action is compliant (as this can be a subsequent issued raised by any debtor when proceedings are issued, if the pre-action protocol has not been properly complied with).

An LBA is a formal legal notice warning that Court proceedings will be initiated if payment is not received within a specified timeframe (30 days in line with the pre-action protocol for debt claims). When sending a Letter Before Action, it should include:

The amount owed, reason for, and a breakdown of the debt;
Reference to previous attempts to recover payment;
A final deadline for payment;
Notice of further legal action if the debt remains unpaid.

A well-drafted LBA often encourages debtors to settle, as ignoring it could lead to legal proceedings and additional costs.

Statutory demands may also be appropriate in some cases when chasing payment for an outstanding debt. They are more formal notices that request payment of a debt within 21 days of issue.

It is a serious step and can only be used if the debt is over £750 for companies or over £5,000 for individuals. It is typically used when the creditor believes the debtor is solvent but is refusing to pay, and also when the creditor intends to escalate the matter to either winding-up or bankruptcy proceedings.

Clear payment terms in a contract help prevent debt disputes by setting out clear expectations for when and how payments should be made. Well-defined terms reduce confusion, provide legal protection in case of non-payment, and make it easier to enforce debts if recovery action becomes necessary.

It is also worth noting that if a business-to-business transaction is taking place and there is debt owed, the creditor can claim interest and compensation on any unpaid invoices as stated in the Late Payment of Commercial Debts (Interest) Act 1998.

Court Claims and Enforcement

When all of the pre-action protocols have been exhausted, formal court processes can begin.

Our team of commercial debt recovery solicitors can assist you in issuing either County Court or High Court proceedings, depending on the debt amount in question. The County Court handles lower-value cases, and the High Court deals with more substantial debts. Within the County Court, your claim will be allocated to either the Small Claims Track (disputes of less than £10,000), Fast Track (disputes generally up to £25,000), Intermediate Track (£25,001 – £100,000) or the Multi Track (£100,000+ disputes, or claims which are allocated to the Multi Track due to a requirement in the rules). These tracks can be varied from at a Judge’s discretion dependent upon complexity however, it is important to be aware that the appropriate allocation of track can impact on recovery of your legal fees of pursuing legal action. Our debt recovery team will be able to advise on the likely recoverability of your legal fees, but before making the decision to proceed with a commercial debt recovery dispute, it should be borne in mind that it is often the case that 100% of your legal fees are not recovered from the debtor (in Small Claims Track matters, legal costs are not recoverable save for disbursements, such as Court fees). The value of any recovery of any debt should therefore take this into account, and our dispute resolution experts will be able to advise on the costs-benefit merits of proceeding with any litigious action.

Once you have issued Court proceedings, if the debtor doesn’t respond to the claim or if the Court rules in favour of the creditor, a County Court Judgment (CCJ) is issued, which is a Court Order that legally forces the debtor to pay the debt.

Obtaining a CCJ is often just the first step. If the debtor still doesn’t pay, various enforcement options are available to creditors:

Bailiffs and Debt Collection Agencies: Court-appointed bailiffs can be instructed to seize and sell the debtor’s assets to satisfy the debt.
Attachment of Earnings: An attachment of an earnings order requires the debtor’s employer to deduct a specified amount from their wages and pay it directly to the creditor until the debt is repaid.
Insolvency Action and Proceedings: In some cases, if the debt is substantial, the creditor may consider petitioning for the debtor’s bankruptcy or, if the debtor is a company (business to business debts), for its winding up.
Charging Order: Obtaining an Order for monies owed as against a debtor’s property, so that at the point the property is sold (and they can be compelled to do so if necessary), funds must first be paid to yourself in fulfilment of any Court Order.

Alternative Options: Mediation and ADR

Litigious action may not always be the most suitable means to resolve a commercial debt recovery dispute, and Alternative Dispute Resolution (ADR) should be considered in all cases, and particularly as an earlier means of resolving a lower value dispute.

Our commercial debt recovery service team can assist with providing advice or representation on ADR, which can take the following most common forms:

Mediation

While some debt disputes and debt recovery cases might need to be dealt with in Court, businesses can also consider mediation. Taking place with the input of an impartial mediator, mediation can often prove faster than going through the Court, and it can also be much more cost-effective. The parties come together at a mediation and seek to narrow the issues, with the parties subsequently being in separate rooms to one another (which can be digital or in-person) and the mediator going between both rooms to try and resolve disputes. Mediation is highly effective, and more often than not leads to an amicable outcome for all parties involved.

Round-Table Meeting/Joint Settlement Meeting

An RTM or JSM is similar to a mediation, save that the parties come together without the input of a mediator and try to iron out the areas in dispute. These “without prejudice” types of meetings can be effective in resolving disputes, but lack the independence barrier provided by a mediator.

Further Action to be Taken in Insolvency Proceedings in Respect of Commercial Debt Recovery Claims

When cases progress through the Court and the debtor has still failed to pay their debt, the Court can then order winding-up petitions (aimed at companies), and bankruptcy proceedings (aimed at individuals).

A winding-up order, also known as compulsory liquidation, orders a business to liquidate its assets and cease operations. When the Court grants a winding-up order, the company is declared insolvent due to its failure to meet financial obligations to creditors.

In comparison, Bankruptcy proceedings can be initiated against an individual who owes a debt. If the Court grants a Bankruptcy petition against an individual, their assets can be liquidated to pay their creditors. It should be noted that before pursuing bankruptcy proceedings, creditors should assess whether the debtor has assets worth recovering and whether alternative enforcement methods (such as attachment of earnings orders) may be more suitable.

How AFG Can Assist

If you are currently dealing with a dispute surrounding the enforcement and payment of commercial debts, then our team at AFG Law are ready to assist you.

Our debt recovery service is supported by commercial litigation specialists who regularly handle disputed and/or complex claims professionally and efficiently, and will work closely with yourself to ensure resolution of the dispute. We can provide advice on all aspects of recovery and are experienced in both one-off debts and extensive book debt collection.

To discuss any business debt recovery matter, please get in touch with a member of our team on 01204377600. Alternatively, you can send an email with your name, contact information, and brief details about the nature of your issue to disputeresolution@afglaw.co.uk and one of our team members will be able to help you.

AFG Law have multiple offices with debt recovery teams in Manchester, including Stockport, Bolton and Bury. We can also assist clients with their debt dispute remotely.