A Guide To Debt Collection

Accountancy Resources

A Guide To Debt Collection

Credit And Debt Author: Admin


One major cause of headaches for both businesses and individuals can be when customers, clients, or other people refuse to pay the money that they owe.

Despite letters and phone calls they may fail to meet their financial obligations and can leave their creditors feeling not only frustrated but also out of pocket. For many small businesses, being left out of pocket can be the difference between their business surviving and their business going under, particularly at a time when the economy is still recovering. In this article, we will discuss the stages of pursuing debt and detail some of the ways in which creditors can successfully chase payment for the money that they are owed.

Prior to court action

In most cases, a letter before action can help to clear up a dispute without the need for the case to be taken to court, which most debtors will want to avoid. A legal professional can help you to calculate any interest that is due on the debt and to correctly word the letter to the debtor.

A formal written statutory demand can often take less time and incur less cost than taking a debtor to court. This collection method also benefits from the fact that a demand can be served as soon as the debt is overdue. The debtor then has 21 days to make payment. If they fail to do so then the creditor can present a bankruptcy petition for individuals or a winding-up petition if the debtor is a business.

If the debtor has cause to dispute or defend the debt then they may choose to take the matter to court, in which case the creditor may withdraw the statutory demand and proceed with litigation. A statutory demand can encourage the debtor to “play their hand” as they may decide to begin bankruptcy or liquidation proceedings.

Mediation through a solicitor may also be an effective step to take prior to taking the matter to court.


Once the debtor receives their statutory demand they have 21 days to make payment. If payment has not been made after this date then a solicitor can help to issue a claim with the courts.

Once a claim is issued with the courts, the debtor is then obliged to take some form of action within 14 days. They might choose to dispute the debt, accept and acknowledge the debt, or offer a rate of repayment. In the absence of a response from the debtor, the court will make a decision on their behalf, known as ‘judgement in default’. If this happens then the debtor will be required to pay the whole debt back immediately. If they still do not respond then a creditor may be forced to pursue enforcement of the debt.


If attempts to obtain payment from a debtor are still unsuccessful and the debtor defaults on their judgement then the only option left may be enforcement but how can this be achieved?

Third-party debt order

A third party debt order is a type of court judgement where the debtor is unable to remove money from their bank account until the money that is owed to the creditor is settled. In order for a third party debt order to be enforced, the creditor must have already obtained a County Court Judgement (CCJ) against the debtor. Whereas individuals who owe money may be able to demonstrate financial hardship and apply for payment of their daily living costs during this period, it can be more difficult for a company or business in this situation to do the same.

Charging Orders

If the creditor has a CCJ in place against the debtor yet they fail to pay the debt off by the agreed date or keep up with payments then the creditor might need to apply for a charging order, which is a further court order. This order secures the debt against assets such as property in the debtor’s name. If the debtor still doesn’t pay then the creditor can apply for an order for sale which puts the property on the market.

Attachment of Earnings

An attachment of earnings order is applied for through the court and means that an individual debtor has the debt taken directly from their wages, with the amount and frequency of deductions determined by the court. However, for this to work the debtor must be in work and have an employer. Members of the army, air force, navy and merchant navy are also exempt. Further information on the criteria of attachments of earnings orders can be obtained through the HMCS.

Warrant of Execution

Another effective route for pursuing a debt can be to apply for a Warrant of Execution. This allows a creditor to ask bailiffs to enter the debtor’s home and seize goods. There are strict rules which govern the use of bailiffs and they cannot be used without a country court judgement in place. The bailiff will aim to retrieve enough items to raise enough money to cover the debt through sale in auction.

Freezing Orders

Particularly in the case of commercial debt, Freezing Orders can be a valuable tool to stop money that is owed from being dispersed elsewhere.

A Freezing Order is applied for through the courts and prevents a defendant from disposing or handling assets in such a way that it frustrates the recovery of their debt.

For a Freezing Order to be enforced the case needs to be in England and Wales and assets in question must also be held there. The creditor is also responsible for the legal costs involved for both parties.

Bankruptcy and winding-up orders

If it appears unlikely that a debtor will meet a judgement or court order then bankruptcy and winding orders may be the only remaining effective route to go down.

For individual debtors, a creditor may petition to make them bankrupt if the person owes them more than £750. When an individual is made bankrupt they will be made to sell off assets, such as houses and cars, in order to pay their debts and they will be placed under certain restrictions for a 12 month period.

For companies, a winding-up order can be used to pursue debts over £750. The winding-up order should be handled by an experienced solicitor as the process can be particularly complex. A winding-up petition can be used to make a debtor company liquidate any assets that can be sold off in order to pay off their debts.

When it comes to pursuing commercial debt there are a number of options you can choose from. Choosing a debt collection agency to help you recover the debt can work but you could find yourself losing out as the agency may charge extortionate fees which make pursuing the debt less profitable. Another option could be to handle the collection of the debt yourself through mediation, although you might find that this leads to no significant outcome. If after considering your options you think that court action is the best approach to take then you should seek professional legal counsel.