From 1st October 2017, debt recovery and collections in both the commercial and consumer world are going to be heavily impacted by the introduction of the debt recovery Pre-Action Protocol (‘PAP’). The rules, set for introduction later this year, appear to skew in favour of the consumer, rather than the debt collector, making collecting debt harder for businesses.

How the new rules will impact you

The new rules will increase the amount of time individuals are given to respond to a debt claim letter from ten days to twenty-one days. In cases where the debt is not paid within that time, a further letter will be issued and they will be given fourteen days of grace. Subsequently, debtors will have almost double the amount of time than the present allowance before they can be taken to court. The protocols set out by the Ministry of Justice will increase administrative and compliance burdens for businesses. Furthermore, the requirements for claim letters will increase under the new legislature. For example, if there are interest charges and further detail on the type of contract. A longer response time allowed to debtors is likely to squeeze margins and, particularly for SMEs, restrict a business’ cash flow. Failure to comply with the new rules could result in sanctions which include (but are not limited to) cost sanctions and a reduction in the amount of interest able to be claimed on the debt. As businesses face new challenges in the ever-uncertain post-Brexit economic environment this increase in ‘red tape’ will not be welcomed. Hence, businesses will look to outsource their debt collection more frequently, in order to avoid sanctions, or begin their processes of debt collection much earlier than usual.

Contact The Insolvency Experts

For more information regarding the latest Ministry of Justice rules, please get in touch with our specialists today. You can call our office directly on 0339203308 or contact us online.