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The Process of Recovering A Debt For Your Business
07/05/2025
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Unpaid invoices affect businesses of all sizes. In the UK, the Federation of Small Businesses (FSB) estimates that businesses spend about 8 days each year chasing debts. Income lost because of unpaid debts averages at £1,350.
You can often recover debt with good strategies without going to court. However, having a lawyer like Eatons Solicitors can be helpful.
The first step to recovering a business debt is usually to send a polite reminder to the debtor. These reminders usually come in the form of a letter, an email, or a phone call. This is because it is best practice for businesses to set specific payment terms. The invoice due must be paid within a set period between 7 and 30 days.
If the debtor does not respond to the reminders, the next step is to send a formal Letter Before Action (LBA). This is the debtor's final warning before legal action. This is a crucial step of the debt collection process. This letter specifies the amount due, when it is due and sets a deadline for legal action.
The LBA also specifies the interest applicable to the debt in line with the Late Payment of Commercial Debts Act of 1998. This allows businesses to charge interest on overdue payments.
Issuing legal proceedings is costly for most businesses. That is why, if the debtor is arguing about whether the payment is due, using an alternative dispute resolution method can be beneficial. These are ways to resolve a dispute outside formal court proceedings. Methods include mediation, arbitration, conciliation, and arbitration.
In England and Wales, it is the Civil Mediation Council that provides these services. This is a cost-effective alternative when recovering a commercial debt. It confidential and informal, flexible, and offers a speedy resolution. Moreover, a neutral mediator presides these sessions allowing both parties to preserve their relationship.
Another alternative is for the creditor to offer a repayment plan. The process remains informal, so it doesn't hold legal binding, and anyone can cancel it at any time. This type of agreement is usually managed by a debt collection agency. Their job is to negotiate affordable payments between the debtor and the creditor.
When a business is owed over £10,000 they can make a court claim for money. The claim can be made online if the debt is under £25,000. In those cases instances, it is often a good idea to seek legal advice from a firm such as Eatons Solicitors who can help handle every aspect of the claim from calculating the debt’s to filing the claim.
If the debtor doesn't respond, the creditor can request a County Court Judgment. Thereby, legally confirming the debt and formally acknowledging the amount owed. Once granted, the debtor will typically have 14 days to pay the amount specified by the court. Failure to do so can lead to enforcement actions.
Step 5: Enforcement Action
A creditor can only take enforcement action if the debtor refuses to pay despite a CCJ being issued.
County Court Bailiffs can seize assets to cover the debt but are only responsible for enforcing counting court judgements. The value of the assets will cover the cost of the debt.
If the debtor does not respond to the judgment or is declared bankrupt. If six years have passed since the judgment, the judge can move the CCJ to the High Court. In this case, the court appoints High Court Enforcement Officers (HCEO) to recover the debt.
HCEOS have more extensive powers than County Court Bailiffs. They can visit the debtor's premises to seize control of goods, remove and sell assts at auction, and enforce a write of control. This is the most effective way of ensuring a debt is recovered.
However, it isn't always necessary to seize the debtor's assets to recover a debt. If the debtor owns property, a Charging Order is sometimes more effective. Particularly when the debtor doesn't have enough funds to repay the debt. It ensures that the seller repays the debt when they sell the property.
In more extreme cases, a Winding Up Petition might be more appropriate. This means the debtor no longer has the funds to repay the debt and the judge must order the company's liquidation.
Preventing Late Payments In The Future
In the current economy, saving time and preventing a loss of cash flow is crucial. The best to do this is to have systems in place to prevent overdue payments.
These include setting clear payment terms in contracts. Use invoice factoring or credit checks before taking on new business. Also, send out automated payment reminders.
However, before working on these systems, Eatons Solicitors recommends getting advice from a solicitor specialising in debt recovery.
Small business debt recovery is a long and arduous task, which is why we recommend seeking advice from professionals. It is important for companies with overdue payments to act quickly. This helps recover the debt as soon as possible. Seeking legal from a solicitor is the best way to ensure the debt is recovered.
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