The Debt Recovery Pre-Action Protocol – has it met its goals?
The Debt Recovery Pre-Action Protocol (PAP) came into effect on 1 October 2017. Now, with time for it to have established itself, we take a look at the impact the protocol has had and whether it has made a difference to businesses looking to recoup monies owed...
The Pre-Action Protocol – a recap
Applying to limited businesses, partnerships, sole traders and public bodies, PAP applies to any business seeking debt payment from an individual or sole trader. Business to business debts are not included within the protocol and neither are matters covered by other PAPs, such as construction, engineering or mortgage arrears.
PAP – what’s the point?
These new regulations were introduced to improve the legal process and encourage better communication between all parties, ultimately to ensure disputes are resolved before court proceedings are instigated. And, where court proceedings cannot be avoided, the PAP was brought into effect to ensure they run as efficiently as possible.
So, has the protocol had the desired effect?
To assess whether the protocol has achieved its aims, we refer to the Ministry of Justice’s quarterly statistics to see whether the number of claims in the court has been reduced.
January to March 2017, before the pre-action protocol was introduced, saw 392,767 money claims issued. 76,242 were defended and 316,525 were undefended.
September to December 2017, the quarter in which the PAP was introduced, saw 307,000 money claims - a reduction of some 17% during the same period in the previous year and down 85,767 from the first quarter of 2017. Of these claims 73,000 were defended and 234,000 undefended.
From these statistics it appears as though the goal of reducing claims is being achieved. However, the goal of reducing the number of trials has not yet been met.
Debt recovery in action…
Here at Smith Partnership we have seen an increase in the number of letters of claim issued. This is likely as a result of the extra time the PAP allows and shows businesses have started to be more reactive to their debtors.
To put this into context, pre-PAP we saw many of our business clients waiting up to 180 days after an invoice was due before issuing a letter of claim. In contrast, we now see letters of claim issued between days 60 and 80.
Overall this has resulted in businesses seeing outstanding debts settled sooner. However, where a letter of claim does not result in payment, the decision to issue a claim needs to be made sooner.
It is also worth noting that there seems to be a lack of understanding, or clarity, on behalf of the debtor in terms of responding to the claim. In our experience the vast majority of reply forms are left uncompleted.
For more information
If your business requires help and advice on debt recovery matters, contact our team of debt recovery experts on 0330 123 1229.
Along with legal know-how, we also offer Activate, a cost-effective online debt recovery service that puts businesses in control of managing their finances.