Business Debt Recovery: A Practical Guide to Getting Paid

For a small business, an unpaid invoice is not just an annoyance. It is money you have already earned, often after paying for materials, staff and fuel, and every week it stays unpaid puts pressure on your cash flow. The encouraging news is that most debts can be recovered with a clear, firm and well organised approach, and many are paid as soon as the customer realises you are serious.

This guide walks through the steps we use to help businesses in Scunthorpe, Goole and across North Lincolnshire and the East Riding, and clients further afield, get paid. For an overview of our service, see our commercial debt recovery page.

The easiest debt to recover is the one that never arises. A few simple habits make a real difference:

• Written terms and conditions that your customer has accepted before you start work, setting out what you will supply, the price and when payment is due.
• Clear payment terms on every invoice, with the due date and how to pay.
• An interest clause in your terms, so you are not relying only on the statutory rate.
• Credit checks for new customers and sensible credit limits, especially for larger orders.
• Retention of title wording for goods, so they remain yours until paid for.
• Good records of orders, delivery notes, emails and any complaints.

If your terms have not been looked at for a while, our commercial contracts team can review them.

Start promptly. A polite reminder as soon as an invoice is overdue, followed by a phone call and then a firmer written reminder, resolves a large share of late payments. Keep it professional and keep a note of every conversation. If the customer says they are struggling, it may be worth agreeing a short payment plan in writing, so long as you stay alert to any missed instalments.

If the customer raises a complaint about the work or goods, take it seriously and respond in writing. A genuine dispute changes the approach, as we explain below.

It is also worth thinking about your wider position while you chase. Should you pause further work or deliveries until the account is up to date? Is the customer still trading normally, or are there warning signs such as missed payments to other suppliers? Acting early, while the business still has money to pay, gives you the best chance of a full recovery.

If reminders do not work, the next step is a formal letter before action. This sets out the debt, how it is made up and what will happen if it is not paid, and gives the debtor a fixed period to pay or respond. A letter on a solicitor’s headed paper often prompts payment on its own.

Getting this step right also matters for later. The courts expect parties to exchange information and try to settle before a claim is issued:

• where the debtor is an individual, including a sole trader, a specific Pre-Action Protocol for Debt Claims applies, which requires certain information and forms and normally gives the debtor 30 days to reply;
• where the debtor is a company or other business, the general rules on pre-action conduct apply, which require a reasonable period to respond.

For an undisputed debt, our fixed fee for preparing and sending a letter before action is £175 plus VAT. See our debt recovery pricing page.

When one business sells to another on credit, the Late Payment of Commercial Debts (Interest) Act 1998 lets you claim statutory interest on a late invoice, unless your contract provides a substantial remedy of its own. Statutory interest is 8% a year above the Bank of England base rate. You can also claim a fixed sum of compensation for each late invoice, which depends on its size (£40, £70 or £100), and in some cases reasonable extra recovery costs.

These sums can add up, and simply mentioning them often encourages payment. The Act does not apply to sales to consumers, so we will advise you which rates and charges apply to your particular debts.

If the letter before action does not bring payment, we can issue a claim in the County Court. The debtor then has a short period to pay, admit the debt or file a defence. If they do none of these, we can ask the court for judgment in default, without a hearing.

Our fixed fee for preparing proceedings on an undisputed debt is £230 plus VAT, plus the court fee, which depends on the value of the claim. A typical undisputed recovery takes around 8 to 10 weeks from instruction to payment, although it can be quicker or longer depending on how promptly the debtor responds.

Bear in mind that smaller claims are usually dealt with on the small claims track, where the legal costs you can recover from the debtor are limited. We will help you weigh up the value of the debt against the cost of pursuing it before you decide.

If the debtor files a defence, the claim becomes defended and the court will give directions for how it should proceed. Many defended claims still settle well before any hearing, and we will advise you on sensible offers along the way.

Most debtors pay once judgment is entered against them, not least because an unpaid County Court judgment can affect their credit rating. If they still do not pay, the court has a range of enforcement options, including:

• sending enforcement agents to take control of goods;
• an attachment of earnings order, where the debtor is an individual in employment;
• a third party debt order, freezing money in the debtor’s bank account;
• a charging order over property the debtor owns.

For larger debts, insolvency procedures such as a statutory demand may also be an option. Enforcement is charged separately from our fixed fees, and we will give you an estimate and recommend the most practical route before you commit.

If the customer says the work was defective, the goods were faulty or the price was not agreed, the matter becomes a disputed claim. Our fixed fees cover undisputed debts only. Disputed claims are charged at our published hourly rates, and we will always give you a cost estimate first. Often the best outcome is a negotiated settlement, and we will tell you honestly how strong your position is. Our article What is Commercial Litigation? explains how business disputes are resolved more generally.

In England and Wales, a claim for an unpaid contract debt must generally be issued within six years of the date payment fell due. If the debtor acknowledges the debt in writing or makes a part payment, the six years can start again. That said, the older a debt gets, the harder it usually is to recover, so it pays to act quickly.

Our debt recovery team, led by Partner Andrew Horwich, helps businesses across many sectors recover what they are owed. We work for clients in Scunthorpe, Goole, across North Lincolnshire and the East Riding, and throughout England and Wales. We use transparent fixed fees for undisputed debts, keep you informed at every stage, and aim to get you paid while protecting customer relationships wherever possible.

Call us about an unpaid invoice, or visit our business law pages to see how else we support local businesses.