It can be frustrating when your business is owed money and it hasn’t been paid. You may be unsure how to go about recovering the amount owed so we’ve outlined the process for you.
1. Chase the invoice
It may be that you can resolve this informally with the debtor and avoid formal legal action. A simple email chasing the payment may be all that’s needed, or if you’re debtor is struggling to pay, you may be able to negotiate a payment plan with them instead.
2. Letter Before Action (LBA)
If you’ve already tried to chase the debtor with no luck, the next step is to send a Letter Before Action before issuing legal proceedings. This is essentially a final demand letter warning them that you will commence legal proceedings if they do not pay.
It should include:-
- Details of the debt owing;
- The date payment should have been made;
- Any interest that’s accrued; and
- How long the debtor has to arrange payment before you plan to commence legal proceedings.
In some cases, the threat of legal action may be enough to prompt the debtor to make payment. If you would prefer, you can ask us to send this for you. A letter from a solicitor will not only show that you have taken legal advice, but will also make it clear that you’re serious about pursuing the debt.
3. Commence legal proceedings
If you’ve sent an LBA with no response, unfortunately, the next step is to commence legal proceedings.
There are two options here:-
- Issue a claim
You can issue a claim against the debtor. You (or your legal representative) will need to issue a claim form and particulars of claim setting out the details of the debt. This will need to be filed at the court along with an issue fee. Once issued, it will be served on the debtor who will have 14 days to acknowledge the claim and 28 days to respond in full. The debtor may either admit or defend the claim, they may also make a counter-claim. If there is no response to the claim, you’ll be able to apply for a judgment in default. However, if the claim is defended then the court will give directions for the case to proceed to trial which can be a lengthy process.
- Insolvency proceedings
This is an option if the debt is undisputed. If the debtor is a commercial client, you may be able to petition the court for a winding-up order if the debt owed is in excess of £750. The threat of insolvency will usually prompt the debtor to pay up, otherwise, the company will go into liquidation.
If the debtor is an individual owing over £5,000 you can petition the Court for a bankruptcy order.
4. Enforcement action
If a County Court Judgment (CCJ) has been entered and the debtor still doesn’t pay, there are various forms of enforcement action available, including:-
- Appointing High Court Enforcement Officers or Bailiffs to collect the debt
- A charging order securing the debt against any property the debtor owns
- A winding up order
- A third party debt order
- Attachment to earnings
- Bankruptcy proceedings
Things to consider:
When deciding whether or not to issue a claim for debt recovery, it is worth considering the following points to assess whether issuing proceedings are going to be worthwhile:
- Can your debtor afford to pay?
If your debtor can’t afford to pay, you may risk spending more money on the process than you would be able to recover if you pursued the debt.
- Is the debt worth pursuing?
If the debt is for a relatively small amount it may be more beneficial to simply write it off than to go through the expense of recovering it.
- Time and cost of pursuing the payment
Litigation can be both costly and time consuming which may outweigh the benefit of recovering the sum from the debtor. If the debt is less than £10,000, you won’t be able to recover any legal fees, only the court fee. If the debt exceeds £10,000 costs can be claimed, although it is very unusual to be able to recover 100% of your costs.
- Impact of the client relationship
If the debtor is a client you want to continue to work with, you will need to consider the impact of any litigation on your relationship with that client.
- How long has the debt been outstanding?
If there has been no acknowledgement or payment from the debtor within six years, the debt will be unenforceable under the Limitation Act.
Need help with an unpaid debt?
No matter where you are in the process, we’d be happy to advise you on any outstanding debt issues. Click here to get in touch.