A statutory demand is an effective way for businesses to obtain payment from customers who may be reluctant and unwilling to pay.
However, and we don’t say this lightly, statutory demands come with consequences, and it’s important to be aware of these so you can make the most informed decision on whether this is the right option for you.
At Direct Route, we help our clients with the management of their credit processes and the collection of outstanding invoices, which can include introducing statutory demands. We work on your behalf to ensure that your invoices are paid on time every time and that your cash flow continues to flow positively.
Statutory demand explained
A statutory demand is a formal notice issued by a creditor demanding payment of an overdue invoice.
This demand will ask for formal acknowledgement from the debtor that payment is forthcoming. Otherwise, the next stage will be court proceedings, which may result in a winding-up petition being served to the debtor’s business or a bankruptcy petition being served to individuals.
As the creditor, you can also include additional costs and interest issued as late payment charges against the amount outstanding.
Statutory demands are typically served on debts of over £750 for a company debt and £5,000 for an individual.
In addition, for a statutory demand to stand, the debt must not be currently in dispute, and no payment plan should be in place.
Once a statutory demand has been served, there is a time limit for you to respond to the demand. Ideally, we would always recommend this to be immediate (see more detailed timescales below).
Importance of statutory demand
Statutory demands are formal demands chasing an outstanding debt and ultimately are a vital part of a debt collection process supporting businesses in getting paid.
However, ensuring that the information they contain is correct is also essential, as these documents can be used as evidence in court. If there are any errors on the form, the debtor can challenge the statutory demand.
Statutory demands can be disputed when:
- There is an outstanding claim against the creditor.
- The debt is secured against a property.
- The court understands there to be reasonable grounds for dispute that have been brought to light by the debtor.
- The debt is under a court judgement.
Issuing a statutory demand
You can issue a statutory demand without going through the courts; however, it is always recommended to use a professional service to ensure that the business or person in question is officially served and receives the documents in person.
If this is not an option, look to send via recorded delivery and keep full records of all documentation and delivery notices.
Once served, the debtor (company) has 21 days to respond and 18 days if the debtor is an individual. The response could be that the debtor has agreed to make payment, they have agreed to a payment plan, or they have challenged the statutory demand.
If a payment or a payment plan is agreed upon or made, then no further action is required.
If you do not receive a response, the creditor can seek a petition to wind up the debtor company or to make an individual bankrupt.
(Check out our post on how to recover debt from an individual for more details and information in this area.)
If the debtor is able to pay off the debt in full, they have made a reasonable repayment offer, or the debt is being paid in instalments in accordance with a CCJ, then the debtor may be able to object to a bankruptcy order, however this would be judged on a case by case basis.
What to do when issued with a statutory demand
If you have an overdue invoice and a statutory demand has been served, you, as the debtor, have several options. These include:
- Paying the outstanding amount in full so no further action is taken.
- Offer reasonable payment instalments, so no further action is taken.
- Provide evidence and valid reasons to the creditor, asking them to write off the debt.
- Offer security on your property to avoid further action being taken.
- Look to set up an IVA.
- Reduce the amount you owe below £5,000 to avoid bankruptcy proceedings being taken against you.
- Opt for bankruptcy.
Commercial overdue invoice
At Direct Route, we help manage credit processes and support businesses with the collection of an invoice unpaid.
We have years of experience in debt collection and supporting businesses with late payments, and in most cases, we can help recover outstanding debts without the need to take further bankruptcy action.
We know chasing unpaid invoices isn’t the best part of your job, and we understand that it also takes up a lot of time and resources. Time and resources that you could spend on other areas of your business.
Let us help you with your collection procedures; speak to a member of our team today.
Call 01274223190 or email: memberbenefits@directroute.co.uk.