If you are running a business, then at some point, you are likely to have a client who does not pay your invoices. This can be disruptive, taking time and energy away from your work, and also has the potential to cause cash flow problems.
Addressing debt recovery promptly can minimise the time spent chasing payments and send a clear message that you expect clients to pay according to your terms and conditions.
What to Do if a Client Doesn’t Pay
If you are owed money from a client, there are several steps you can take to recover what’s due.
Chasing
The first step is to make sure you have clearly advised the client of the amount due and your terms and conditions. Send them a reminder letter and give them a firm date by which they must pay, or you will take further action.
You can follow this up with a telephone call to check that your correspondence is being received and see whether there is any problem, for example, if they have a reason for not paying.
Holding Credit
If you have extended credit to the client, you should consider putting this on hold and suspending any further credit until any money due has been paid.
Letter Before Action
The next step is to send a letter before action. This is a warning that if the client does not pay, you will start legal proceedings to recover what is owed. It is important to include all relevant information in a letter before action. We can draft and send this on your behalf if you wish. It is often the case that early correspondence from a solicitor lets the other party know that the issue is being taken seriously and that there is a real intention to take the necessary steps to recover the money, resulting in the outstanding debt being paid.
A letter before action will generally include the following information:
- The amount owed, plus any interest, and how this has been calculated
- Details of what the debt relates to
- The date that the debt should have been paid
- The terms and conditions of your agreement that have been breached
- A deadline by which you expect the debt to be cleared
- A statement that if payment is not received by this date, then legal action will be commenced
You should also include copies of any relevant documents, such as invoices and the contract.
It is crucial to include the right information in the letter before action, including the correct calculation of the sum owed plus interest. We can advise you of your rights and ensure that the letter protects your interests while clearly setting out what will happen next.
Possible Issues with a Letter Before Action
There are a few common pitfalls that may reduce the effectiveness of a Letter Before Action. Watch out for:
- Incorrect Amount Claimed: Miscalculations can delay or weaken your case.
- Failure to Include Key Documents: Such as signed contracts or invoices.
- Inaccurate Dates: Make sure payment terms and deadlines are clearly stated and accurate.
- An Overly Aggressive Tone: May harm future business relationships or be counterproductive.
- Ignoring Disputes: If the client has raised concerns, these should be acknowledged and addressed where appropriate.
- Non-Compliance with Pre-Action Protocols: Especially for court claims, procedural fairness is key.
We can help ensure your letter includes all necessary details and strikes the right tone.
Statutory Demand
As an alternative to an LBA, you may be able to issue a Statutory Demand if:
- The debtor is a company and owes more than £750
- The debt is undisputed and remains unpaid after 21 days
If ignored, you may apply to wind up the company.
For individual debtors, the threshold is £5,000. If payment isn’t received within 21 days, you may petition for bankruptcy.
Statutory demands can be effective, but are considered a last resort. You should always seek legal advice before proceeding.
Alternative Dispute Resolution and Pre-Action Negotiations
Wherever possible, the courts like disputing parties to resolve matters between themselves. This should at least be attempted. We can negotiate with the debtor or their solicitor on your behalf. Where we are unable to reach an agreement over how and when the debt will be cleared, the next step is generally to consider alternative dispute resolution (ADR). This could be adjudication, arbitration or expert determination.
ADR methods include:
- Adjudication: A binding decision is typically made within 28 days.
- Arbitration: A legally binding ruling made by an arbitrator.
- Expert Determination: An independent expert reviews the case and issues a decision.
- Mediation: A voluntary process where, with the assistance of a mediator, parties reach a settlement.
With adjudication, an adjudicator will look at your case and will usually make a binding decision within 28 days. With arbitration, your case is put to an arbitrator who will make a ruling that you will both be bound by. We can advise you on the options open to you and represent you during the dispute resolution process, ensuring that the strongest possible case is put forward on your behalf.
Legal Action
If you intend to take legal action to recover a debt, it is important not to leave it too long. You will usually have six years from the date on which the goods or services were provided unless your contract stipulates that a cause of action for payment is deferred until an invoice is sent or the due date for payment has passed, in which case it will be six years from that date.
We can advise you on whether court action is appropriate and, if so, handle the process for you from start to finish.
How Do I Know if It’s Worth Taking Legal Action?
Before starting a claim, it’s important to weigh the likelihood of recovery. Ask yourself:
- Is the debtor able to pay? If they are insolvent, even a court win might not result in payment.
- Is there a clear contractual breach? A strong legal position increases your chances of success.
We can help assess the strength of your claim and the practical chances of recovering your money.
How Much Will It Cost?
The cost of taking legal action varies. Factors that affect this include:
- Actions Taken by the Debtor: Defending the claim or filing counterclaims can increase costs.
- Whether Your Claim Succeeds: Winning may entitle you to recover some or all of your legal fees.
- The Amount of the Debt: Higher-value claims can involve more complex legal procedures.
- Level of Professional Support Needed: Engaging solicitors or counsel adds to the cost but can also improve your chances of success.
We will always provide a transparent estimate before proceeding.
Debt Collection
We are business debt recovery experts. We offer a full range of debt collection services, including:
- Pre-Action Debt Recovery
- Bankruptcy Proceedings and Orders
- Winding-Up Proceedings
- Third-Party Debt Orders
- Charging Orders
- County Court Debt Proceedings
- High Court Debt Proceedings
- Enforcing Judgments
Our experienced solicitors can advise on the best route to maximise your chances of recovering what’s owed. For more information, see our debt recovery page.
The Small Claims Court
If your claim is worth up to £10,000, you may be able to recover it via the small claims court. We can evaluate your claim and let you know if it is suitable and ensure that you have all of the necessary documentation in support of your case. We can also represent you in court where necessary.
For information in respect of recovering debt from an individual, see our recovering debt page.
Contact Our Debt Recovery Solicitors
We represent professionals and businesses in recovering unpaid debt. We are quite often able to secure payment quickly by contacting the debtor and explaining clearly what will happen if the invoice is not cleared. Where necessary, we will take further steps to obtain payment. It is often the case that the paying party can be required to pay legal fees as well.
Recovering an outstanding debt is not always straightforward, and it is important to choose the right option and follow the correct procedure. We can advise you of your options and the best course of action open to you. We have a high level of success in recovering debt for our clients, both in and out of court.
If you would like to speak to one of our expert debt recovery lawyers, ring us on 0330 173 3041, email us at info@witansolicitors.uk or fill in our contact form, and we will talk through your situation with you and discuss how we can help.
FAQ
Can I skip straight to a statutory demand instead of going through the courts?
A statutory demand can be used as an alternative to court proceedings if the debt is undisputed and above the relevant threshold. However, it is seen as a serious step and may not be appropriate in all cases. You should seek legal advice before proceeding.
What happens with VAT if my customer doesn’t pay the invoice?
If a client doesn’t pay and the debt becomes bad, you may be able to reclaim the VAT from HMRC, provided certain conditions are met, such as the debt being over six months old and written off in your accounts. Speak to your accountant or legal adviser for help with this process.
