The goal of credit management is to recover a debt amicably. This avoids the expenseof legal action and the detrimental impact it might have on customer relationshipsand brand image. However, there will always be a minority of debts which requirelitigation.

From 1 October 2017 creditors will be expected to have followed the Pre-Action Protocol(PAP) for debt claims before proceeding with litigation.

Courts will expect all parties to comply with this protocol. If it is not followed this couldresult in a claim being "stayed" (put on hold) to allow a period for compliance or, alternatively,sanctions being imposed.

A consequence of the protocol is that creditors, especially large-scale lenders and consumerdebt management businesses, will need to ensure that their internal processes accommodatethe requirements of the debt PAP.

The scope of the protocol and what it means for a creditor wanting to recover a debt throughlitigation is explored and advice offered on how to remain compliant with the protocol andachieving a successful recovery of a debt.

Author Robert Sorrentino is Business Development, Collections & Information Security Officerat ACS.

The debt PAP applies when any business isclaiming payment of a debt through thecourts from an individual - including anindividual in business as a sole trader.It does not apply to business-to-business debt(unless the debtor is a sole trader).

The protocol sets the standards and timetablefor the conduct of debt cases before legalproceedings are started. It is a set of stepsthat both parties are required to take beforegoing to court. It is started by the creditorsending the late payer a Letter-of-Claim. Thedebtor is required to respond to the Letter-of-Claim before the claim deadline.

A creditor intending to pursue legal action torecover a debt is required to send a clearlydated Letter-of-Claim to the debtor beforeproceedings are started. This letter mustcontain the following information:

• The debt amount• If interest or other charges are continuing• Details of how the debt arose: verbal or

written agreement• If the debt has been assigned details of the

assignment• If payments are being made an explanation

why the offer is not acceptable• Detail on how the debt can be paid• An up-to-date statement• A reply and financial statement form

The Letter-of-Claim should be sent usingRoyal Mail post unless the debtor has madean explicit request otherwise and providedalternative contact information.

The debtor has 30 days in which to respondto the Letter-of-Claim.

The creditor may start court proceedings afterthe 30 days has elapsed and no response tothe Letter-of-Claim has been received.However, the creditor must consider thepossibility that a reply was posted towards endof the 30 days period.

The PAP prescribes what the creditor mustdo when the debtor responds. The creditormust,

• If the debtor is seeking debt advice - allowthe debtor reasonable time to do so

• If the debtor requires time to pay - reachagreement for the debt to be paid byinstalments

• If a partially completed response isreceived - continue to engage with thedebtor

• If the claim is disputed - provide anyrequested documentation or informationpromptly - this must be provided within 30days of receiving the request.

The parties are required to consider using anappropriate form of Alternative DisputeResolution (ADR). This should involve acompliant process through the FinancialOmbudsman Service (FOS) or CivilMediation.

Showing compliance with the requirementsof the PAP is likely to be a cornerstone of asuccessful litigation for the full debt.

A business which anticipates that it may needto recover a debt through the courts shouldreview its processes and records forcompliance with the protocol and inparticular,

• Ensure records and documentation arecorrect and available

• Collect and hold the information requiredfor the Letter-of-Claim

• Avoid delay in pursuing an overdue debt -PAP assumes that there is an earlyexchange of information between thecreditor and debtor, in particular to clarifyany areas of dispute.

ACS offers a professional, regulated, andtimely debt recovery service. If you wouldlike to learn more about PAP or about theimplementation of processes which arecompliant and practical for your business,please contact us on 01707 252900.

Established in 2000, ACS provides credit management and debt collection services. Furtherinformation and resources including copies of this guide are available on its website.

Address: Steele House, 126 Great North Road, Hatfield, Herts, AL9 5JNTelephone: 01707 252900Fax: 01707 252901Email: info@advancedcollection.co.ukWebsite: www.advancedcollectiion.co.uk