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Debt collection without court action

How to collect debt without going to court

How to collect debt without going to court 

When you are convinced that a client is stalling on paying a debt, either because of their delay in paying invoices or as a result of their approach when you have raised the subject with them, you can simply decide to stop dealing with them and write off the debt if you think it’s not worth pursuing. But if you want to keep channels of communication open, a formal reminder letter may change the playing field and prompt your client to settle their debts. You can initially send through a statement of account which provides all the details of the outstanding balance. If this has no effect, it can be followed up with a first payment reminder letter and then by a final payment reminder which threatens the possibility of taking legal action.

What if a client disputes the amount of debt owed? 

Maintaining accurate records is extremely important when it comes to any disputes concerning amounts owed. But if you cannot reach an agreement with your client regarding repayment of any outstanding debts it may be worth considering mediation or arbitration. The involvement of an independent third party can often help to promote negotiations and achieve a compromise agreement (sometimes called a settlement agreement). 

What is a compromise agreement? 

Sometimes in cases where the amount of debt is being disputed it may simply be easier to agree to a different amount, in order to smooth the process and allow a business relationship to continue. In situations where a client is experiencing financial problems and can only afford to pay a portion of an invoice, it will often make business sense to come to a suitable agreement. In both these scenarios, the new agreement (which will generally reduce the original debt amount) is known as a compromise agreement. Alternatives to a compromise agreement include extensions to the debt payment date, an instalment arrangement or an agreement to accept goods instead of money owed.

External debt collection - agencies and solicitors 

If you are unable to reach an agreement with your client and reminder letters do not have the desired effect, it may be worth instructing a debt collection agency or law firm which specialises in debt collection. They may offer to purchase the debt for a reduced amount or take a proportion of any debt recovered.

Debtor protection legislation

In connection with debt collection generally, you need to be aware that the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will apply in certain cases to prohibit taking any step seeking payment from a debtor.

A variety of documents which may help with late payments can be downloaded from our Business Documents Folder.




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