Unpaid invoices can create a serious cash-flow problem, but a measured process is usually more effective than jumping straight to court proceedings. This guide consolidates several older Business Bus Stop articles on debt recovery, letters before action, court claims and Company Voluntary Arrangements. It is intended as general information for UK businesses and should be checked against the facts of your case.
1. Check the debt and your paperwork
Start by confirming the amount due, the payment deadline, the contract or terms that apply, and whether the customer has raised a genuine dispute. Keep copies of the order, invoice, delivery evidence, emails and notes of telephone conversations. An accurate chronology makes later correspondence much easier.
2. Contact the customer promptly
A missed payment can be an administrative problem rather than a refusal to pay. Send a clear reminder identifying the invoice, amount and original due date. Ask whether there is a problem with the service or invoice and give a reasonable deadline for payment. If the customer proposes instalments, record any agreement in writing.
3. Consider interest and recovery costs
For qualifying business-to-business debts, statutory interest may be available at 8% above the Bank of England base rate unless the contract provides a different rate. Fixed recovery costs may also be claimable: £40 for debts below £1,000, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more. Check the current rules before adding anything to a demand.
GOV.UK guidance on late commercial payments and the Small Business Commissioner interest calculator are useful starting points.
4. Send a formal letter before action
If reminders fail, send a formal letter setting out the parties, the basis of the debt, the sum claimed, any interest or costs, the documents relied upon and what will happen if payment is not made. The correct pre-action requirements depend on the type of debtor and dispute. The court expects parties to exchange enough information to understand each other’s position and to consider settlement before proceedings.
5. Decide whether a claim is proportionate
A court claim may be appropriate when the debt is clear and the debtor has assets or income from which a judgment can be paid. Fees, management time, evidence, limitation periods, counterclaims and enforcement prospects all matter. Mediation may resolve a dispute more quickly and cheaply. GOV.UK provides the current process for making a money claim.
What if the debtor enters a CVA?
A Company Voluntary Arrangement allows an insolvent limited company to agree repayment terms with its creditors while continuing to trade. Creditors receive the proposal and can vote. If the required majority approves it, the arrangement can bind creditors. Read the proposal carefully, submit an accurate proof of debt, note the voting deadline and consider whether specialist insolvency advice is proportionate. The current overview is available in the GOV.UK CVA guidance.
Reduce the risk next time
Use written terms, carry out proportionate credit checks, set sensible credit limits, invoice promptly and monitor overdue accounts consistently. Deal with queries as soon as they arise. A clear process protects customer relationships while making it easier to escalate genuine non-payment.
Jonathan Fagan is MD of Ten-Percent.co.uk Limited and TP Recruitment Limited, a set of websites involved in a range of recruitment work. Jonathan has been running small businesses for over 20 years and has a number of interests and investments in companies as diverse as transcription, legal recruitment and a bit of marketing. He is an author of a number of guides and books, together with a children’s novel. In his spare time he enjoys playing golf, cricket, coaching girls’ football, operating a parent taxi, lots of running and paddleboarding on Bala Lake and the River Dee. He is a strong believer in a good work-life balance and regular blogs on making money vs enjoying life. Jonathan’s website is https://www.jonathanfagan.co.uk