Send a payment reminder once payment is overdue
You should send a Reminder letter once payment becomes overdue.
This records the late payment, the amount outstanding, the Invoices in respect of the amount and the breach of the credit terms.
You can use the reminder to request payment by return or the customer can reply to the reminder explaining any payment delay.
If the debt remains outstanding after the first letter you should send a Second reminder letter when you think it is reasonable, considering the number of days that you have given the debtor in the first letter to repay the debt.
Claim interest and debt recovery compensation
At each stage, it's up to you whether you claim interest. For more information, read Claiming interest on commercial debts.
You may decide, particularly at the first payment reminder stage, that you would prefer to reserve your position regarding interest than claiming it right now.
You need to balance the need to nurture your continuing relationship with your customer with your need to recover debts.
Our Payment reminder letters also reserve your right to claim compensation for debt recovery costs, which you are entitled to do by law for business customers.
You must take certain steps before starting court action
Trying to settle a claim before taking court action is important. The courts may penalise a claimant who doesn't attempt to settle a claim before taking legal action.
Only consider court action if the payment reminders and other measures described above have been unsuccessful in prompting payment.
It is essential to give the customer a final chance to pay before starting legal action.
England and Wales
In England and Wales, a court will expect the claimant to have set out a claim in writing before issuing proceedings.
A formal Letter before action sets out the debt and gives the other party a reasonable time to reply - a month is usual. The other party should also be warned that court action will be initiated if they fail to reply within the given time.
For more information, read Issuing a money claim.
In Scotland, money owed can be reclaimed in one of two ways, depending on how much money is owed. The ‘simple procedure’ is for uncomplicated cases worth less than £5,000 while the ‘ordinary cause’ is for cases worth more than £5,000 or those which are complicated.
Different rules apply depending on which method is used.
For more information, read Small claims court in Scotland.