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Prevention of legal action by creditors

Preventing legal action being taken by creditors

Legal action against you by creditors can not only damage your credibility but also saddle you with hefty legal costs, it can mean that you spend more time defending a case than concentrating on your business and even being tipped over the edge into bankruptcy. Therefore, you should try not to fall behind on making payments or settling invoices on time. Always make sure you are fully aware of any standard procedures adopted by larger creditors such as banks, as these are often more difficult to deal with due to higher levels of bureaucracy.

If you do fall behind with payment, try and achieve a compromise solution. Flexible negotiation is the key, and the sooner you begin negotiations the better. To have a better chance of reaching a deal and thereby avoiding legal action, don't let a situation spiral out of control. Creditors will norrmally give you fair warning of legal action and take various other steps to resolve the situation since it is costly and time consuming for them to sue. Try and agree a compromise such as a new repayment structure or set an extension date for payment. If you can persuade your supplier or creditor that your financial problems are short-term this may well be enough to allow the business relationship to continue. 

If you use your own purchase terms and conditions, suitable payment terms in them might give you some breathing space at difficult times for example if they state payment periods or agreed rates of late payment interest which are relatively favourable to you.  As a business, and unilke a consumer, you can and should try to negotiate your own purchase terms with your suppliers.

Action that a creditor can take is subject to the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. If they apply to a particular debt, they provide a breathing space by temporarily prohibiting a creditor from taking any step to obtain payment from a debtor. See Appendix B of the Guidance Notes: Debt Recovery and Legal Action here.

A variety of documents which may help with preventing legal action being taken by creditors can be downloaded from our Business Documents Folder. 

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