Debt Recovery

Yes, when you issue court action you can recover your full legal costs and interest, in addition to the debt. You can also claim a compensation payment of up to £100. So collecting in your debts need not cost you money; in fact, you can even make money in the process.

When taking court action you can claim the court fee paid from your customer and a fixed sum for legal costs. This amount depends on the size of the debt and will be between £50 and £100 for issuing the claim.

Whether you recover your full legal fees will depend on what your solicitor charges you. Some solicitors now charge only the fixed fee for taking legal action, which means that you then recover the whole cost from your debtor when payment is made.

You can only recover legal costs from the debtor where a solicitor has issued the claim for you – you can’t claim this if you issue the court action yourself.

Interest on business debts is now payable after 30 days as a matter of law following the Late Payment of Commercial Debts (Interest) Act 1998. Interest is payable at eight per cent above base rate, so the current rate claimed is a very respectable 13.25 per cent. You are also entitled to claim a compensation payment of between £40 and £100.

So, on a debt of £1,500 which has been unpaid for three months, for example, you could claim interest of around £50 and compensation of £70, together with the court fee of £120 and your solicitor’s fixed fee of £80. The debtor must, therefore, pay a total of £1,820, or £320 more than the original debt.

Remember, you can only recover a fixed fee from the debtor towards your legal fees. If your solicitor charges a higher fee, then you must pay the difference. To ensure that you recover your legal fees in full, instruct a solicitor who will charge you only the fixed fee.

* Tom Lisgo is a Partner in Blackett Hart & Pratt Solicitors. For more information, contact him on 0191-221 0898. If you’re involved in business and have a general question you would like solicitors at BHP to answer in this column, send it to info@b-h-p.com