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Recover debt

Make the right documents to prevent late payments and recover debt owed


Recover debt FAQs

  • How to recover debt

    Debt recovery is a major issue for many small businesses, particularly when margins are tight. Understanding how to deal with late payment of commercial debts and collecting money owed to you is a crucial part of effectively managing your business.

    Prevention is always better than cure and following certain processes when dealing with a new customer can help ensure that your invoices are paid promptly. If you do have to chase up Invoices, a First payment reminder letter is a useful tool, as is the ability to charge interest for late payment. Occasionally, a Repayment agreement can provide a solution and there are other alternatives to court action, including mediation. Ultimately you may decide that legal action is necessary in which case you should understand how to issue a claim and possibly even make a statutory demand.

  • How to prevent late payment

    In order to prevent late payment issues arising in the first place, it's a good idea to perform credit checks on new customers. This could include checking whether a new customer has any court judgments outstanding against them and whether they are solvent. Ensure that every customer is issued with a tightly drawn agreement or Terms and conditions in which payment terms are clearly set out. Invoices should be issued in a timely manner and remember to keep an audit trail of credit-related documents, as records are crucial to effective debt collection.

  • Late payment letters

    A professionally worded late payment letter can prompt a customer to take swift action to pay the Invoice. You can use a First payment reminder letter once the payment becomes overdue. If the debt remains outstanding after the first letter you should send the Second payment reminder letter when you think it's reasonable, considering the number of days that you have given the debtor in the first letter to repay the debt. If this fails to have the desired effect, you may want to consider a Letter before action to indicate that you are prepared to commence legal proceedings for collection and enforcement of the debt.

  • Charging interest

    Rocket Lawyer's debt collection letters calculate interest on late payments for you. Interest can be charged in respect of late payment of commercial debts for all types of business transactions. There is a set amount of statutory interest which can be charged if payment has not been received within 30 days of the customer receiving the invoice (or delivery of goods or services if later). Many contracts will contain a clause that makes provision for contractual interest. Additionally, a fixed sum can be charged for the cost of recovering a late commercial payment. For more information, read Calculating interest on commercial debts.

  • Debt management plan

    If your customer accepts that money is owing and is willing to make arrangements for the debt to be repaid consider creating a debt management plan. Record an offer to pay off the debt by regular fixed instalments in a Debt repayment plan letter. If you're the recipient of such a letter and decide to accept the proposal, you can consider doing so using a Letter accepting payments in instalments.

    If you want to formalise your agreement to pay in instalments in a form of a loan agreement rather than a letter, you can use a Promissory note, which sets out the names of the parties, the amount due, instalment amounts, provision for interest and the effect of late payment.

  • Alternatives to legal action

    If your customer does not dispute that money is owed, and the amount of the debt is not in dispute, consider dealing with debt collectors. Debt collection agents can engage solicitors and take legal action to recover your money, often by sending out routine letters and telephoning customers. There is an industry association of debt recovery agents, the Credit Services Association, which lists the members.

    When a customer accepts that money is owed but disputes the amount due, you may want to consider mediation which can help the parties arrive at a compromise (although any agreement made is entirely voluntary). Arbitration is a step up from mediation where an independent arbitrator hears both sides and makes a binding decision (which precludes further court action). For further information, read Alternatives to legal action and Alternative Dispute Resolution (ADR).

  • Issuing a claim

    Take some time to decide if you really want to take a customer to court. Bear in mind that, even if the court action is successful, there is no guarantee that the debt will be recovered. If they have no assets or there are other debts outstanding against them, it may not be possible to enforce the judgment against the customer. Furthermore, pursuing a court claim can be costly.

    If you still decide to go ahead, you can either issue a claim online or use hard-copy forms. For further information, read Issuing a money claim.

    England and Wales

    In England and Wales, to claim online, you can use the Government's Money Claim Online service. The claim must be:

    • for a fixed amount less than £100,000
    • against no more than two people or organisations
    • sent to an address in England or Wales with a valid postcode

    The Court will normally issue, print and send the claim form to the defendant on the day that it is submitted online. Court fees for online claims must be paid by credit or debit card.

    If you're making a claim for an unspecified amount, you will need to make a paper claim. Complete Form N1 with your details and the person/organisation who owes you the sum being claimed. Attach a copy of any relevant agreement to this form and don't forget to include interest. Send this to County Court Money Claims Centre, PO Box 527, Salford M5 0BY. You will also need to pay a court fee - which is more expensive if you make a paper claim compared to using the Money Claim Online.

    If you receive no response to your claim, it's relatively easy to obtain judgment in your favour (known as 'judgment by default'). You must then take enforcement action to recover the debt.


    In Scotland, a money claim for up to £10,000 is brought in the Sheriff Court. There are two ways to bring a claim in the Sheriff Court:

    1. Through the simple procedure - where your case is worth less than £5,000 and isn’t complicated. A claim can usually be made in the Sheriff Court closest to you. It may also be made in the Sheriff Court in the area where the trader has its business (but this may not be convenient if it is somewhere else in the UK).

    2. Through the ordinary cause - where your case is worth more than £5,000 and is complicated.

    For more information, read Small claims court in Scotland.

  • Defending a claim

    If you receive a response admitting that money is owed, the debtor can offer to pay in instalments or in one lump sum at a date in the future which you can accept, using a Letter accepting payment in instalments or refuse. If there is no proposal for payment, ask the court for an order for payment.

    If the claim is disputed, the debtor must provide a defence. The court uses an allocation questionnaire to decide which track to allocate the case to and then provides directions. These tell the parties what they need to do and by when and can include a trial date or preliminary hearing date (if there are things to be dealt with before trial). A request can be made by letter to change a hearing date but it is important to follow directions exactly as otherwise a penalty can be imposed, or the case postponed. If the case is settled before trial, confirm this in writing and send a copy to the court. When the trial has taken place, a court order is sent to the parties.

  • What is a statutory demand?

    If an individual or company owes you money, you can request repayment by serving a statutory demand. Once you serve a statutory demand, if the debt is not paid within 21 days, you can apply to wind up the company or make the individual bankrupt.

    Only issue a statutory demand if there is no dispute that you are owed the money. If you serve a statutory demand and then issue a bankruptcy or winding-up petition, the court must stop the proceedings if there is any dispute about the sum outstanding.

    To issue a statutory demand the party must be solvent and the debt must be for more than £750 (where the debtor is a company) or £5,000 (where the debtor is an individual). The statutory demand gives the person 21 days warning to settle the debt. A statutory demand can be an effective debt collecting device in its own right, without the need to proceed to a petition.

    If the party does not either pay or respond within 21 days, the next step is to apply for a bankruptcy petition or a winding-up petition. If the court finds in your favour the other party must be wound up or made bankrupt. For more information, read Insolvency and Insolvency in Scotland.

    Ask a lawyer for advice on debt recovery.

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Legal guides

  1. The Debt Respite Scheme (Breathing Spaces)
    8 min read
  2. Issuing a money claim
    4 min read
  3. Calculating interest on commercial debts
    3 min read
  4. Alternative Dispute Resolution
    5 min read
  5. Unsecured and secured loans
    3 min read
  6. How to avoid problems with debtors
    2 min read
  7. How to recover debt checklist
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  8. Court orders and enforcement
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  9. Alternatives to legal action
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  10. Payment reminders
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  11. How a claim is defended
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  12. Repayment agreements
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  13. Statutory demands
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  14. Loan agreements and promissory notes
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  15. Advantages and disadvantages of declaring bankruptcy
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  16. Bankruptcy process
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