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When a friend asks to borrow money it can be difficult to refuse. We don't think twice about saying no or hanging up to telemarketers that want us to part with our money, however when it's someone familiar that's asking, your usual good judgement can quickly disappear.
But if after giving the loan your trusted friend disappears just as quickly, then you've now got a dilemma.
This scenario is unfortunately all too common with payment service Paym finding that over 12 million people in the UK admit to having fallen out with friends or family over money. Just under a third of these instances were from only lending up to £100.
But after repeatedly asking your friend for the money back, being reasonable and understanding of their circumstances but ultimately being left out of pocket, what can you do next?
Can you actually take your friend to court?
How can you prove you are owed the money?
Before involving the court you need to think about your prospects of success. You'll need to have some kind of evidence that you lent the money in the first place and that your friend hasn't paid you back.
If you've got a signed contract, agreement or IOU then that's ideal but the evidence of the loan doesn't always necessarily have to be written.
A legal contract can be verbal if it was just an arrangement you discussed and agreed between yourselves, however there still needs to be something that a court can see, like:
Does your friend actually have the money to repay you?
You can't get blood from a stone, so if your friend has no cash or assets then there may be little gained from taking them to court. It will cost money to issue the claim and you'll rack up further fees to enforce any judgment from the court (bailiffs etc.) to end up with nothing or very little.
But if your friend is employed, owns a car, has equity in a house or some other assets that would cover the debt then it's reasonable to assume that you can make a recovery from them by going through the courts.
"Nearly two out of five people admit they don't always pay friends back, and one in 10 say they have avoided paying money back to family on purpose." - Research by Paym
How to get money back from a friend
If you've secured evidence of you making the loan and believe your friend has the means to pay you back, then it's time to start getting serious. Sometimes the realisation that you're willing to take the matter further can snap your friend into action.
First step is to write a simple (but formal) 'Letter Before Action' which gives your friend a final chance to settle the debt before court proceedings are started. As a minimum your letter should include:
Keep a copy for yourself and send the letter in the post to their home address or where they are currently living.
The best outcome is that your friend pays you back or at the very least you agree a payment plan that starts to recoup the loan. That way you avoid court costs and eventually get your money back. If your friend subsequently fails to comply with the payment plan then at least you'll have further evidence to start court proceedings.
Also if you want to add further weight to your claim you can get a solicitor to draft and send the debt letter which should only cost around £25.00.
Taking friends or family to the Small Claims Court
The last resort in recovering your money is to take your friend to court. This is normally done through the small claims court and will involve you completing some paperwork, submitting it to the court and paying a court fee.
Instructions on how to make a claim can be found on the Gov.uk website. Straightforward claims can be done on your own with a little time and effort, but can get complicated if the claim is defended or bailiffs need to be instructed etc. As such depending on the amount, it may be wise to instruct a solicitor to handle the claim who should be able to do this for a fixed fee plus disbursements (the court fee etc.)
"Before borrowing money from a friend, decide which you need most"
Being owed money by a trusted friend who won't pay you back is never a good situation to be in and how you proceed will likely be determined by how much you want to maintain the friendship.
If your friend is in real financial difficulty then piling on court proceedings may not help them or their family, so you may want to consider the full impact of taking matters further. But this is a judgement and financial call only you can make.
You shouldn't feel guilty about pursuing money owed to you which you lent in good faith. Remember if anyone has jeopardised your friendship it's a friend who has decided to stop paying and communicating with you.
Wouldn't all companies love it if their customers paid invoices on time? There would be no need to ever chase debts and worries about cash flow would be a thing of the past. However in all likelihood we'll never reach this debt free utopia.
Businesses can invoice clients early, wait patiently for payment, send chases and hope that payment will someday finally arrive.
But sometimes those little reminders, polite conversations, copy invoices and monthly statements are not enough to deal with those who are adamant they are not paying.
So what can you do to ensure your business is paid the money it is owed?
Choosing how and when you need to take formal action can be difficult and there are a few options at your disposal. After all, the last thing you want to do is spend time and money going head-to-head in court with a client about an invoice the second it is overdue.
But when you've exhausted the chasing letters and phone calls, what are the next steps of getting your invoice paid?
Evidence needed to prove a debt recovery claim
Should you get an agency or solicitor to collect a debt, or do it yourself?
To make a claim on your own check out the HMCTS Money Claim Online service. It offers a process to recover the money your business is owed by walking you through submitting an online claim and paying a court fee.
You need to be aware that this is court proceedings and so you should familiarise yourself with the 'pre action' guidelines along with what happens should you win your claim and receive a judgment. Read the Money claim online user guide thoroughly before starting the claim process.
Debt Collection Agency
When you hire a debt collection agency they will start chasing the debt and in some scenarios begin the legal process to recover it through the courts. You should bear in mind that debt collection agencies don't have any special legal powers beyond what you can do yourself. Generally a debt collection agent will also take a proportion of any debt that they are successful in collecting to cover their fees.
A Solicitor should provide some general advice on the process and a fixed fee of what they will charge. If their fees are more than the money you are seeking from your customer, then you'll be better going with another route. However experienced debt recovery solicitors should have a fee structure which complements the amount you are wishing to recover and the complexity of the issue (i.e. it will be more complicated if the debtor defends or disputes the debt).
In the majority of cases, a single solicitor's 'letter before court action' does the trick and the customer will pay their bill rather than face court proceedings from a law firm.
If court action is needed a solicitor can explain the risks and advise on items such as recovering court fees and any statutory late payment charge that can be made. For example, interest may be able to claimed on top of the debt (usually 8% above base rate) via the Late Payment of Commercial Debts Act.
You may feel bad 'hounding' a customer about paying their debt and even getting a solicitor involved, but you shouldn't. You did your job and it’s not your fault they have failed to pay you in a timely manner.
Being understanding to your customers while knowing your legal rights is what all responsible businesses should aim for.
Differences of opinion can arise in both personal and working life. Most of the time people are able to resolve matters between themselves but unfortunately that isn't always the case and matters can escalate when feelings are hurt or points of view are not appreciated.
Decisions then have to be made about when to escalate matters and even consult a solicitor. But before issuing the war cry 'You'll be hearing from my solicitor!' take a moment and try to keep a few things in mind.
Keep calm and carry on talking
Whether your dispute is with an individual (such as a neighbour or tradesperson), a group (club or organisation) or a large company, anger and stress won't help. Clouded judgement and impulsive action will only make matters worse and provide a bad impression towards your reasonableness.
Keep focused on the specific issue and try to engage in a calm, polite discussion with the individual or business representative. Tell them your problem, what it will take from them to resolve it and make sure you listen to their response or any alternatives offered.
Use the correct channels
Talk to the right person or department. For example if your dispute is about a faulty item you have purchased, then a manager or customer service representative will be more able to help you get it replaced than a trainee sales assistant. If you are not sure who to talk to, make polite enquiries until you find the right person.
If you cannot get the matter resolved, consider whether there is a complaints procedure that you can follow, and then do so. Also find out if there is an independent trade body such as the Financial Conduct Authority or an ombudsman to whom you can appeal to following your complaint.
Don't make threats
Try not to talk about legal action, suing them or dragging them in court until you have tried everything you can reasonably do to resolve the matter. Taking an adversarial approach at the very start may limit your options for a quick and simple solution.
Keep a record
If matters do need legal action and in extreme cases have to go to court, you will need to provide evidence of the problem. So keeping notes, photographs, documents and anything else that is relevant will be important. This documentation will also help you demonstrate all you have done to try to resolve the issue before being forced in taking legal action.
Make notes of any conversations you have with the date/time and who you spoke to, also keep copies of any letters or emails you have sent.
You will be hearing from my solicitor
If you have satisfied yourself that you have done absolutely everything possible to sort things out but have been met with no success, then it's time to consult a solicitor.
If you have a solid case then quite often a letter or intervention from a law firm can bring surprisingly quick and positive results and won't cost the earth. But depending how far you wish to pursue the matter it could ultimately end up in court which will take time and money.
A solicitor will be able to advise you on your chances of a successful legal action, the evidence that will be needed and what costs are involved. Just don't invoke us in anger!