With any monetary transaction like a loan to a friend, invoice from a business, or a refund from a tradesperson, there will always be a chance that the other party will fail to pay you.
Just getting back what is owed to you can be difficult enough, but if you then also lose touch with the debtor, the complexity of your problems will increase significantly. When a business owes you money it's generally a straightforward matter to track them down, as when a business is still trading their contact details can be found online or via their advertising. But for debts owed by a person it can be a much more difficult task to trace an individual. Regardless of having the debtor's mobile number, email address and social media details, the most important information you will need when considering legal action is their address. Legal options for debt recovery.
The first stage in taking formal debt recovery legal action is sending a Letter of Claim (also known as a Letter Before Action) to the debtor.
The purpose of this letter is to outline the exact amount that is owed, the reason you believe the debt is due, provide a reasonable timeframe for payment to be made in full, and in the event payment is not received in this timeframe, warn that court proceedings may be started without further notice. The Letter of Claim should be posted to the debtor at their current address. While a copy can also be sent via email it must be sent in the post and be clearly dated. Sending this letter is an important 'pre-action' step and is required to comply with the various pre-court action protocols. Should the letter not result in payment the next stage is issuing court proceedings. Again, this will require the debtor's current address for the court to successfully serve the Claim Form and for you to start any subsequent enforcement action. Therefore, finding the current address of the debtor is critical before considering legal proceedings. How to find a business that owes you money?
Businesses are generally easier to locate an address for, as most businesses want to be found by their potential customers. Their trading address will usually be on their website, used in their advertisements or documented in any agreements or terms and conditions you may have been given.
Failing these checks, the next places to try to locate an address are on the various business listings that are available online:
How do I find a person who owes me money?
Individuals can be much more difficult to locate an address for as there will be significantly less information about them online or in the public domain.
A first step is to ask any friends or business associates that you may have in common if they know the debtor's current address. Note that while you may know the workplace of the individual, legal correspondence for a debt owed by them personally must be sent to their residential address and not to their employer. There are then some free and low cost directories available online which may help trace an individual such as the BT Phonebook and 192.com. However, the results provided by these directories may be limited and outdated so it is not recommended that these are solely relied on. The most reliable method of tracing an individual's address is to instruct a professional tracing agent. These can be found online and will offer various tracing packages depending on the depth and timeframe required for the search. Also, many tracing agents offer a no trace no fee service which can be helpful in the event an individual cannot currently be located. What if you can't find an address for the debtor?
If you've tried all of the above and still can't locate a business or residential address, your options will now be limited.
However it is worth bearing in mind that you generally have six years to start court proceedings on an outstanding debt. So there is nothing stopping you repeating the above searches every few months to see if the debtor resurfaces. Tracing someone who owes you money.
Being owed money but having no address for the debtor adds a further level of complication to taking legal action. However, with a little DIY investigation work and perhaps paying a small fee for some professional tracing assistance, most debtors can be found.
Once you have located the debtor you then need to be confident that they have the assets or funds available to repay the debt. If you were struggling to locate a business because it has closed, or an individual has moved due to their previous home being repossessed, you will need to think carefully about your chances of recovering the debt before incurring the cost of pursuing them through the courts.
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There are very few people or businesses that don't need to borrow money at some point.
Traditionally banks, building societies and credit unions would be the source of funds and the products they offered would require the borrower to agree to various terms and charges. However, this tradition is changing with borrowers frequently now looking towards family, friends and business partners as a loan source. In fact Aviva's Family Finances Report found that loans from family members or friends had overtaken overdrafts as a source of debt held by 18 to 35 year olds. Loaning money to someone in need can often be of great help to them. Especially if they are unable to gain credit elsewhere and it avoids them incurring high charges that are associated with payday or doorstep loans. While you may trust the borrower, be able to afford to lend the money, and have every confidence that you'll be paid back, you should still formalise the arrangement with a written loan agreement. Agreeing and creating a loan agreement.
Most loans between family, friends and even business acquaintances are made informally and without anything in writing. While this is less than ideal from a legal standpoint, it doesn't necessarily mean that you have no legal options should a debtor decide not to pay you back (see our guide on being owed money without a contract or agreement).
But having something in writing is almost always better than having nothing, so drawing up a loan agreement is the way to go. A loan agreement doesn't have to be a lengthy or overly complex document but having down on paper what the lender and borrower have agreed will provide protection should the worst happen and the borrower defaults (doesn't pay back) on the loan. A starting point in creating a loan contract is to first have an open and frank discussion with the borrower about how and when you want to be paid back. There's little point in dictating a payment schedule that's unachievable from the outset and both parties need to be comfortable with any arrangement. For example, you may consider:
When you've agreed the amount, how repayments are to be made and the length of the loan, you then need to discuss what happens if things go wrong. Can the borrower accept the potential legal consequences and costs if they can't make the repayments? If at any point you are struggling to find common ground on what the contract should contain, you may need to reconsider lending the money at all. As differing positions at the outset could be an early sign of a potential dispute. However, if all terms and conditions have been agreed it is time to get them down on paper, ensuring some key legal clauses are included. At this junction it's also worth considering if you should seek legal advice from a solicitor who can take your agreed instructions and professionally draft the document for you. Important clauses in a loan agreement.
Parties Involved At the very start of the agreement you should record the full name, address and contact details of the lender and the borrower. If there are multiple lenders and borrowers, all these should be detailed. Key Dates Record the key dates of the transaction, including when the money lending agreement comes into force and when the loan amount is to be transferred. Amount to be Loaned Clearly specify the amount that is being loaned, and to avoid any doubt or potential for error also record the amount in words as you would on a cheque. I.e. £9,980.50 (nine thousand, nine hundred and eighty pounds and fifty pence) Term of Loan Define a period that the amount is being loaned over and when it needs to be paid back by. Even if you don't have a specific date or timeframe in mind, you should always specify a term (48 months) or a date (by 1 January 2023) when the loan should be fully paid back by. Ideally this term needs to be no more than five and a half years from the date the loan is made to ensure that the debt doesn't become statute barred if you ever need to take legal action to recover your loan.
Governing Law
The agreement should specify what law and jurisdiction it comes under (e.g. English Law, England and Wales). This will be important should legal proceedings ever be required. Signatures The agreement must be signed by both parties and ideally witnessed by an independent person. Drafting a personal loan agreement.
Once the agreement is drafted you should print two copies, sign them and each party keep one. Only when the agreement is signed should you then actually make the loan which ideally should be via cheque or bank transfer so that you have a record.
All this may seem a little daunting, especially if your loan involves a significant amount or you are unfamiliar with the best way to execute the transaction. So if you are in any doubt, consider instructing a solicitor to draft your loan agreement to protect your position and provide piece of mind. Require a personal loan agreement drafting?Send your requirements
Chasing debts is rarely an enjoyable activity when running a business, and you can be forgiven for not jumping on every overdue invoice the moment your payment terms have expired.
If an approach of just tolerating late payments sounds familiar, you're not alone. The Department for Business, Energy & Industrial Strategy found that over half of small businesses wait one month or more beyond their agreed terms for an invoice to be paid. With a fifth of SMEs waiting longer than two months! But when weeks turn into months which then turn into years, you may worry that you've missed your opportunity to take formal action. However, you may be surprised how long you have to pursue a debt before it is legally 'statute barred'. Statute Barred Debts.
Being 'statute barred' means that the defined time period you have to use certain legal avenues to pursue a debt has expired. While this doesn't mean that the money is no longer due, or the debt no longer exists, it does restrict your legal options when pursuing a debt. So can be thought of as a legal time limit for invoices and other debts.
The time limits that formal court action must be made in the UK are detailed in the Limitation Act 1980 and court action is usually defined as a debt claim being issued at the county court or money claim online system. There are different time limits for different areas of law, but when the relevant time limit has passed, this act is able to be used as a defence by the debtor to prevent you obtaining a county court judgment (CCJ) against them. How long do you have to claim unpaid invoices?
Most invoices and debts fall under the definition of a 'Simple Contract' in the Limitation Act, meaning you have six years to commence legal action to recover the debt in England and Wales.
If money is owed in relation to a deed (i.e. a mortgage or property) then the limitation period is 12 years. You will also need to consider any pre-action steps that have to be taken before you issue proceedings such as the Pre-action Protocol for Debt Claims that may require you giving up to 30 days' notice before starting court proceedings. Once you have been through the court process and successfully obtained a court judgment (CCJ) against the debtor. You will generally then have a further six years from the date of the judgment to enforce it. Looking for help with making a debt Claim?Unpaid Invoice Claim from just £48When does the limitation period start for a debt claim?
For simple contracts the Act states that the limitation period will expire six years after the 'cause of action'. A 'cause of action' can be thought of as when a breach of your agreement has occurred.
For example, this could be when:
How to claim unpaid invoices.
Dealing with a debt that was incurred several years ago may seem like a complex process, but if you have documentary evidence that the amount is due it should not prevent you from pursuing the money owed to your business.
A solicitor will be able to advise you on your legal options to recover a business debt, including sending a letter before action, issuing a claim and potential limitation defences. Also if the debt isn't disputed you may be able to claim late payment interest and compensation which can be significant on long overdue debts. While six years may seem a long time, the sooner you act the more chance you have of recovering the amount owed and avoiding your debt claim being statute barred. |
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