Outstanding payments can be a major headache for Small and medium-sized entities (SMEs) as they can have a significant effect on cashflow and seeking payment can take up time that would be better spent on running the business.
In fact, according to Bacs, the not-for-profit entity that runs the eponymous payment service, late payments cost UK SMEs more than £2 billion each year.
This means that recent changes to the procedures for pursuing a debt owed by an individual or a sole trader before taking court action are likely to be of widespread interest.
Indeed, it is a good idea for all business owners to be familiar with the procedures, should an issue arise.
The new Pre-Action Protocol for Debt Claims came into force on 1 October 2017.
It applies to all businesses, including sole traders, who are seeking payment of a debt from an individual, again including sole traders.
It only applies to business cases where the debtor is a sole trader. It does not apply where other Pre-Action Protocols are in effect, such as in relation to construction claims.
No Pre-Action Protocol previously existed in respect of Debt Claims, but businesses were expected to comply with the Practice Direction for Pre-Action Conduct.
The new Pre-Action Protocol sets out specific steps that businesses need to follow and details the required content of the letters that must be sent to the debtor prior to court action.
It also contains an information sheet and reply form that should be sent to the debtor.
The Protocol is intended to resolve more cases before court action is necessary.