This article was last updated 0 months ago and may not represent current law.
If your business is owed money, you want a solution that will handle the situation quickly and effectively. Late payments can be a detriment to your company’s cash flow, so this article exists to help your business to recover money you’re owed. We’ll cover some common scenarios and ways to navigate them.
What if a client doesn't pay?
The steps to follow are:- Invoice as normal
- Chase after terms are up with polite emails and reminders
- Credit hold to stop any works proceeding until the invoice is paid
- Final notice is the last piece of correspondence you're likely to send a client before legal proceedings and includes a payment deadline
- Legal action through small claims court or debt collection services
What is a Letter Before Action?
An LBA is often sent out as a reminder of a payment exceeding the agreed business terms. They can be used as a way to gauge how serious of an issue the debt has become before they decide if legal action needs to be taken.The LBA should include:
- the date
- the name, title and position
- confirmation of the amount of money owing
- the method of preferred payment
- the debtor's contact information, including email address
Legal Action
If you need to take a debtor to court, a County Court Judgement is often the fastest route to recovering money, although it should be noted that obtaining a CCJ can be costly for yourself.Once granted, your options for enforcement include:
- Charging order - the order is made against the company’s property, including shares or assets and can be enforced by law if necessary
- Controlled goods agreement - an enforcement agent (a bailiff) takes control of the debtor’s goods, but the debtor keeps hold of them, acknowledges that the agent has taken control and agrees not to remove or dispose of them before the debt is paid. The debtor still owns the goods while the agreement is in place
- Winding up order - a Liquidator starts recovering any assets that are still owned by the company and use them for as much money as possible in order to pay back what has been owed
Laws governing commercial debt recovery
The time limit for commercial debt recovery in England and Wales comes from the Limitation Act 1980, which gives you six years from when the money became due to start court proceedings on a contract debt. That Act only sets time limits, so the other rules come from elsewhere.If your customer is a business, the Late Payment of Commercial Debts (Interest) Act 1998 lets you add interest at 8% over the Bank of England base rate, plus a fixed sum of £40 for a debt under £1,000, £70 for a debt under £10,000 and £100 for a debt of £10,000 or more.
Once you have a judgment, taking goods is a job for enforcement agents acting under Schedule 12 of the Tribunals, Courts and Enforcement Act 2007, and only an enforcement agent may take control of a debtor’s goods.
How to avoid business debtors
Agree on fixed terms before negotiating a new client contract. Outlining a business agreement is a sincere way of building trust with the customer so that they understand the process of the payments. A late payer fee can work as a good deterrent to ward off late payers.The most important factor is to follow the correct procedures to ensure the best chance of receiving the money your business is owed. If you do not adhere to debt recovery regulations, it could affect your claim later down the line.
I don’t do debt recovery work myself. I refer it to my Nexa colleague Ailsa Fairchild, who does debt recovery for businesses and will quote her own fee, so please get in touch if you’d like an introduction.
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation. Law correct as at .
