Article
6 mins read
Updated on 7 February 2025
Our subject expert
Ian Carson
Partner and Head of Dispute Resolution
Chasing unpaid debts can be stressful and disruptive for any business. Before you take legal action against an individual or sole trader, you’ll need to follow the Pre-Action Protocol for Debt Claims. It’s a formal process designed to encourage early resolution for debt claims.
In this guide, we’ll explain what steps you need to take and how to stay on track. If you’re unsure about handling the process yourself, our commercial debt recovery solicitors can step in, manage the claim on your behalf, and make sure everything runs smoothly and on time.
The Debt Protocol applies to any business, which includes sole traders and public bodies, is chasing a payment of a debt owed to them by an individual. This could be arising from unpaid invoices, a personal loan you’ve given to the individual or defaults under a Consumer Credit Agreement.
For the purposes of the Protocol, the definition of an individual includes sole traders.
If you’re the business owner who’s seeking the recovery of a debt, you’re classed in legal terms and under the Protocol as the creditor and the individual you’re claiming the debt from is known as the debtor.
The Debt Protocol doesn’t apply if another business owes you a debt, unless they’re a sole trader. It does not apply if the dispute is covered by another pre-action protocol, for example, if it’s a construction dispute or if it involves mortgage arrears.
Complying with the Debt Protocol is an important step in recovering what’s owed to you. The Courts expect you to follow the steps set out in the Protocol to try and resolve the dispute before you start court proceedings. If you don’t comply with the Protocol, you could jeopardise your chances of successfully recovering the debt – and also run the risk of the court imposing costs sanctions upon you.
It’s always a good idea to contact the debtor before they take legal action, but if you do, it’s advisable to keep all communications on a polite and measured footing – and in written form if at all possible, so that you have an easily accessible record of the attempt to resolve the situation amicably in case you need to show it to the court at a later date.
You should keep records of all communications with the debtor. This demonstrates that you’ve complied with the Protocol by attempting to resolve the dispute, which is also important in case you have to prove this in the form of evidence if a formal debt claim needs to be started.
These records should include:
There are certain key steps involved in preparing and sending a Letter of Claim, which should be clearly dated and sent by post. This is a document that you’ll have to send to the debtor before you start any court proceedings because it’s an essential part of the Debt Protocol.
Some of the main pieces of information that the letter of claim will need to contain are as follows:
You should also send an up-to-date statement of account with the letter, along with certain documents that the Debt Protocol directs you to send so that the debtor knows exactly how to respond to the letter of claim. It’s also advisable to send a copy of the written agreement, if the debt arises from one.
Because the process of the Debt Protocol has to be followed carefully, it’s a good idea to seek legal advice from a debt recovery solicitor to help you through the stages of preparing and sending your letter of claim. This will minimise the risks of getting any part of the process wrong, which could in turn have a negative effect on recovering the debt or mean that a judge imposes a penalty on you further down the line if the dispute can’t be settled outside of court. If you're unsure about how to draft this document, you might find it helpful to read our guide on sending a Letter Before Action, which outlines what to include and when to send it as part of your debt recovery process.
The debtor should respond to the letter of claim no later than 30 days from the date on the letter. Depending on the circumstances, they should either acknowledge the debt and propose a repayment plan for you to consider, dispute the debt or request more information from you – if they do this, then you should provide them with what they’ve asked for and give them additional time for them to review it.
If, on the other hand, the debtor doesn’t respond to the letter of claim, you’re then free to issue a court claim.
It’s also worth being aware that you may be entitled to claim statutory interest or late payment charges in addition to the original debt. Our article on claiming interest on late payments explains how this works and what you could be entitled to add to the debt.
If you find yourself in a situation where the debtor acknowledges that they owe you some of the debt you’re seeking but challenges the amount, it’s wise to ask them to clarify exactly how much of the debt they admit and how much of it is disputed, and also ask them to explain why they don’t agree that the disputed portion is owed to you. They should provide you with evidence to back this up.
Alongside this, it’s worth considering engaging in a form of alternative dispute resolution (‘ADR’). Negotiation or mediation, for example, can be very successful ways of dealing with any areas of disagreement between parties in debt (and other kinds of) disputes and are, in fact, dispute resolution methods encouraged by the Debt Protocol.
Making sure that you comply with the Debt Protocol is crucial when it comes to recovering debt that’s owed to your business by an individual. Getting your letter of claim right, keeping full records of communication between you and the debtor and demonstrating a willingness to engage in a form of ADR if necessary are all key stages in maximising your chances of a successful recovery. Our team of experienced debt recovery solicitors are able to help you with all of this and more, so that you don’t put a foot wrong when it comes to getting back the money that’s owed to you.
About our expert
Partner and Head of Dispute Resolution
Ian is a Partner and Head of Dispute Resolution at Harper James. He qualified as a solicitor in 1993 and has over 30 years of experience in handling a broad range of commercial disputes.
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