What are the crucial steps in the debt collection process?
The debt collection process is initiated by the creditor when he has not received a payment from a customer or business partner. Here we show you what steps are involved and how creditors can get support.
The debt collection process consists of several stages, not all of which have to be completed in order for the creditor to receive payment. Schematically, the process can be divided into the following four steps.
If a customer or business partner is in arrears with a payment or has not paid its last invoice on time, the creditor must first send a letter of demand. This reminds the debtor that he is in arrears with one (or more) payments.
It is a legal requirement that the Letter of Demand must contain certain information in order for it to stand up in court. These are:
- Address of the creditor and debtor
- Date on which the delay in payment occurred
- Sum owed
- Description of what exactly the debt is (unpaid invoice, returned direct debit, bounced cheque, etc.).
- All evidence if payment reminders have been sent previously
- Payment deadline by which the sum must be paid at the latest
- Payment information of the creditor (e.g. bank details)
- Intention to take legal action if payment is still not received
A new deadline is set in the Letter of Demand, which must be long enough for the debtor to have time to react. 7 days is the minimum period that may be set.
Only if such a letter is sent to the debtor is it possible to take further steps if payment is still not made after the reminder and the deadline has passed.
If the debtor does not respond to the letter and no payment is received by the creditor by the deadline, legal action can be taken. However, before a creditor takes the debtor to court, it makes sense to carry out or have carried out a check to see whether the debtor still has sufficient funds to pay his debt at all.
For example, it can be checked in the Land Registry whether the debtor owns land, residential property or other real estate that can be liquidated in the event of insolvency proceedings. This check can be carried out by a law firm specialising in debt collection.
However, it is also possible to take legal action without a prior review, which for cost reasons is often only done for very high sums owed anyway. For the creditor, however, there is always the risk that he will no longer receive his payment and that he will have to bear the legal costs himself.
If the creditor decides to take legal action, a Claim Form must be filled out describing the case and stating the amount owed. This claim form is submitted to the competent court, which forwards it to the debtor.
The debtor then has 14 days to submit an Acknowledgement of Service. In this, he acknowledges the debt and must then pay the amount. If he repudiates the debt, he can file an Acknowledgement of Defence, for which he has 28 days.
If the debtor acknowledges his debt and settles his outstanding payment with the creditor, the case is settled. If the debtor does not submit either an Acknowledgement of Service or an Acknowledgement of Defence, the creditor's lawyer can apply directly to the court for Judgement in Default. In this case, the court decides without prior trial whether the claim is justified and the debtor has to pay his debt.
If the debtor refuses to pay his debt in the form of an Acknowledgement of Defence, the case goes to trial. After this, the court makes a judgement and informs the debtor whether and what payments he has to make.
The Letter of Demand, which is sent to the debtor as a payment reminder, must meet legal requirements in order to be valid in court and to possibly initiate proceedings against the debtor.
Many companies and/or self-employed persons do not know what the letter of demand must contain and make the first mistake here. This drags out the procedure and the creditor has to wait longer for payment.
A debt recovery agent specialises in the debt collection process and is therefore familiar with debt recovery law. He knows exactly what a letter of demand should look like and how the process works in detail. He can advise the creditor so that the right steps can be taken at the right time so that the creditor gets his money as quickly as possible.
The debt recovery agent draws up a debt recovery plan in which the most promising strategy is determined. If desired, the debt recovery agent also takes over all communication with the debtor and the court, so that the creditor can continue to concentrate fully on his day-to-day business.
The debt collection process takes place in the background, so to speak, whereby the creditor is always informed about important steps and is involved in decisions.