What is the commercial debt recovery process in the UK?

You have just delivered your first-rate services or goods to a client or a customer, together with an invoice for settlement. Your invoice is properly constituted and requests settlement not later than 30 days from the date of the invoice. This is not mandatory but it is courteous and generally accepted as an industry standard. You await payment. But 30 days go by and no payment has been received. What do you do next?

The first steps

If this has happened to you then you know that it can be infuriating and, if it happens often enough, even worrying as it may impact upon your ability to pay your own bills and stay in business. If you have been in this position or you’re in this position now, then you are very far from alone. According to HMRC, as at January 2021, some £23.4 billion was owed to British businesses due to unpaid invoices.

That’s not much comfort if you happen to own one of those businesses but it does not mean you are helpless. The first step you should always take in the process of business debt recovery is to follow up and chase up yourself. This may involve sending a polite reminder that the invoice is unpaid, perhaps followed up with a telephone call. If that doesn’t work, then maybe a "final warning" letter, i.e., a letter which warns that, unless the invoice is paid in full immediately, legal action will be taken next.

Court action is a last resort, so you should explore possible compromises. For example, if the debtor is able to pay by instalments over a reasonable period of time, that is a possible outcome you may be willing to accept. If a compromise cannot be reached, then you can escalate.

Small business debt recovery

Provided the debt does not exceed £10,000 then you can seek recovery by means of the Small Claims Court. This is sometimes known as “the People’s Court” because lawyers are not usually involved and the costs of starting a claim are very modest. This means that the Small Claims Court is a very low risk option for creditors to seek recourse. If the Court decides in your favour, and in the vast majority of unpaid invoice cases it will, then you will be awarded ‘judgment’. With that judgment, you can then seek enforcement by such methods as a charging order on property, bailiffs or even attaching the defendant’s bank account.

If the unpaid or owed sum is greater than £10,000 then the Small Claims procedure is not available to you, in which case, you would need to consult business debt recovery solicitors.

If the debtor is insolvent, then you may not be able to recover any money at all. If you are unlikely to recover anything then you want to avoid throwing good money after bad. Before taking court action or writing off a debt, it would be wise to ascertain whether or not the debtor has any assets, such as a building or other assets.

An alternative legal method of recovery for debts of at least £5,000 is to issue a bankruptcy (if the debtor is an individual) or, if the amount owed is greater than £750, a winding-up petition against the debtor (if a company). If successful, the debtors’ assets will be sold to pay the debt to you. However, in insolvency cases, there are often a series of creditors and many, or even most of them, end up with nothing.

Commercial debt recovery services

Your options are not limited to going through the courts, either with legal representation or without. You could also consult a commercial debt recovery service or a debt collection agency, as they are otherwise known.

If your invoice remains unpaid after 90-120 days, and you have taken the first steps to recovery to no avail, then you can instruct the recovery service to collect the debt from the debtor on your behalf.

Some recovery services also offer to take the whole thing off your hands by ‘buying’ the invoice from you. They pay you, usually a fraction of the invoice sum, and then pursue the debtor for payment. The advantage here is that you get your money now and then you can wash your hands of the whole problem. The downside is that you have to settle for a fraction of what was due to you.

Regardless of how distressed you may be at not being paid what you’re owed, acting in haste may only exacerbate the situation. The best advice is to research all the options and think carefully about the right steps for you, the debtor and the situation.

For further information and trusted legal advice regarding debt recovery, get in touch with us at Carlsons Solicitors.