In October, new rules come into force governing what businesses need to do in the lead up to legal action against clients who have failed to pay.
The Pre-Action Protocol (PAP) sets out the steps to be taken before court action and it affects every type of business.
So, from October, on behalf of our clients, we will have to send a letter to the person who owes our client money which specifies the amount and to what the debt pertains – unpaid school feels, hire equipment unreturned or other unmet bills.
We have to send a statement of account from the client plus a reply form for the person to respond and a financial statement for them to complete (all formatted to an official template).
Finally, we have to spell out how the debt can be paid off. And we have to do this no matter how many emails and phone calls we have already expended time and energy on.
But the letter part isn’t the most annoying and time-wasting part from the point of view of us and our clients.
Once the letter has been received, the debtor has 30 days to respond. He/she can request more documents – which we must provide or explain why they aren’t available within 30 days.
The debtor then has another 30 days to look through the documents and get back to us. But he/she can also decide to get financial advice . . . and we have to give them at least another 30 days to do so.
And only after mediation has been explored thoroughly can we/our client even begin to think about court action.
The – admittedly, laudable – aim of the PAP is to reduce the number of cases going to court and encourage more amicable resolutions. But its outcome will be more bureaucracy and more frustration for clients who are owed money – money that they themselves may depend on to keep their own businesses afloat.
We have no choice but to comply but sometimes you wonder whether the people who draw up these rules genuinely grasp what it’s like to run a small business in practice.
The danger with the PAP is that it could end up creating even more debtors by forcing viable businesses who are owed money by others into liquidation themselves.