2-minute read
New rules designed to help small business owners recover debt could actually make life harder, according to a specialist.
With late payment a major issue for the self-employed, small business owners will be concerned to hear that measures supposed to help with financial disputes may end up causing more hassle.
The new debt recovery rules - called the Pre-Action Protocol for Debt Claims - came into force on 1 October.
They’re an attempt by the civil justice system to help with the early resolution of debt recovery and financial disputes, meaning that, ideally, fewer cases make it to court.
According to the official release, the exact aims of the Protocal are to:
The new rules apply to any business (whether limited company or sole trader) claiming payment of a debt from an individual (again, including sole traders).
The rules do not apply in business-to-business cases, unless the debtor is a sole trader.
Despite attempts to improve things for the self-employed, some experts are warning that the new rules may have made them worse.
The Pre-Action Protocol for Debt Claims will introduce, amongst other measures, a minimum 30-day waiting period between a Letter of Claim being sent to the debtor and proceedings beginning.
Sending the Letter of Claim is unavoidable and must include information on everything from the amount of debt owed, to an explanation as to why an offer of paying in instalments is not acceptable.
And according to Michael Wakeling, a partner at Midlands law firm Lodders, this is just an additional layer to the already slow process of collecting debt.
“This letter will have to be presented with a new and detailed response form, which the debtor must complete and return,” he said. “The requirement of the extended period is the most controversial feature of the new Protocol.
“It affords the debtor a significant chunk of time to deal with the Letter of Claim, adding more time for the business to wait for outstanding monies to be paid.”
Wakeling argues that this essentially means ‘further delays for the kinds of businesses often most challenged by cashflow issues.’
With the new rules likely to lead to further delays in the payment of debts, small business owners are being urged to pay more attention than ever to processes around overdue invoices.
“More than ever, businesses must ensure internal procedures around overdue invoices are tightened up,” Said Wakeling. “Not to do so has the potential for further substantial delays, which is not good news for their cash reserves and cashflow.”
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