Debt recovery – why it can often be easier to recover £250.00 than £5,000.00
Have you ever received a parking violation ticket? Most of us have, and get really annoyed by them, whether we are right or wrong in law. Parking tickets, certainly around London, generally say words to the effect of “pay £40.00 immediately or it will double to £80.00 within a few weeks”. In my experience, most people begrudgingly pay the £40.00, and fast.
The same principle often applies with the lower value debt recovery collections. My firm represents several very large retailers that have to pursue a large number of smaller debts. These debts add up to a lot of money if uncollected, and many creditors, as a matter of policy, will pursue these debts so that word does not get around that it’s ok not to pay.
In a situation with a debt of less than £250.00, the debtor will often ignore the standard debt collection letters, especially if they come from a debt recovery agency rather than solicitors. They often take the view that there are no real consequences.
However, if the debtor knows that with a relatively small debt, legal proceedings will be issued this ups the ante considerably. Why?
Let’s take a working example – you are a creditor and the debtor owes you £150.00. You instruct us to collect the debt. We send one or two letters to the debtor including a formal letter before action. The debtor ignores us. You instruct us to issue a claim.
We can use the standard County court system or the specialist Money Claim Online system. It is slightly cheaper to issue a claim in the latter and more streamlined so we do that. The claim issue fee for a debt of £150.00 is currently £25.00 using Money Claim Online. To that, because we have prepared the Claim Form, we can claim £50.00 fixed costs for legal fees. The upshot? The debt has now risen from £150.00 to £225.00.
Many debtors of these sorts of smaller debts are serial late payers. They know all about the above and will wait until the creditor is about to issue before paying. They also know about the legal fees and don’t want to pay those, which means it can be useful to instruct a lawyer to recover.
If the debt is higher value, the basic economics change – a debt of £5,000.00 is still a small claims amount, but clearly, a significant amount for any business, small or large and creditor or debtor. A debt of that size may indicate also that the debtor is in genuine financial difficulties and in turn, may also result in the debtor seeking to stall payment even after a claim has been issued by lodging a possibly spurious defence, challenging the debt in some form (typical examples will be to argue that goods or services were defective or that the contract was varied by agreement or conduct which may mean that the case must proceed further down the line, buying the debtor time). For this amount, then claim issue fee, which again is slightly higher if you don’t use the Money Claim Online service, is £100.00. The recoverable legal fees for a lawyer preparing and issuing the claim, are £80.00. So, in that scenario, excluding also a claim for interest on the debt, the claim of £5,000.00 becomes £5,180.00, whereas for the lower value debt of £150.00 it rose by a much higher percentage from £150.00 to £225.00.
We provide specialist debt recovery services for all types and sizes of business and have a proven and efficient track record in this area of law. Contact us if you need debt recovery solicitors, whether in London or throughout the UK, call on 020 7242 8966 or email me at