In order to recover a debt, three letters should be sent to the debtor
The reminder letter should be sent after an invoice or a series of invoices remains unpaid after the due date. If you have already sent a letter you may use the second letter straight away.
The letter before action is a demand for payment within 7 days of unpaid invoices, failing which proceedings may be commenced. The demand is not only for payment of the amount due on the invoices but also for interest on the amount owed for the period that payment has been outstanding.
This letter must be given to the debtor, before you start court proceedings, otherwise the court may prevent you seeking costs in a situation where the debtor pays the debt following commencement of court proceedings. In such circumstances, the court may regard the supplier as being unreasonable in commencing proceedings without a letter before action being given to the debtor.
The amount of interest due will depend on the particular circumstances of each case. Normally most contracts will include terms setting out what your rights are in relation to late payments but it is quite possible that these terms haven't been agreed for a number of reasons.
If there are no contractual terms regarding interest then you have a right to charge interest on the outstanding amount under the Late Payment of Commercial Debts (Interest) Act 1998. This Act, which has come into effect in stages, now allows all commercial traders to claim interest from each other on late payment. Where there are no written 'terms of credit sale' between supplier and purchaser, the Act provides for a mandatory 30 day credit period and late payment interest payable from the due date as if there were written terms. Further, a claim for 'reasonable' compensation can be sought from the debtor for collection costs (this is in addition to court fees if the creditor sues and wins).
The fixed reasonable recovery costs are currently (as at September 2009):
|Invoice Amount Costs||Claim|
Up to £999.99
£1000.00 to £9999.99
The Better Payment Practice Campaign has an interest calculator on their website which will assist you in calculating the applicable rate of interest:
Where the two parties have agreed on a rate of late payment interest, i.e. contractual interest, the Act will not apply and the parties will normally have to rely upon the specific terms of their agreement concerning interest on late payments. However, if default arises and the rate/period agreed is not considered to be a 'substantial remedy', the courts will act in favour of the aggrieved party who has a right to either a better remedy or the basic remedy offered within the Act.
For debts greater than £750, it is possible for a creditor to petition for the bankruptcy of a debtor if the latter is an individual or partnership, or for its liquidation if it is a company. The first stage in this process is to send a statutory demand rather than this letter. You should seek the advice of a solicitor before starting such proceedings
The particulars of claim can be used in commencing court proceedings. If the claim is for an amount up to £5000, you can make use of the small claims track which has a less formal, faster approach to resolving disputes. All claims from £5000 to £25000 must be commenced in the county court. If your claim is for more than £25000 you can bring it in the high court. If your customer resides or has its registered office in an area that is outside your local county court district, the case may be transferred to the defendant's local district if you have started the action in your local county court.
To make a claim in court, you will need to complete claim form N1.
However, you might also consider using the Court Service's 'Money Claim Online' service. The 'Money Claim Online' service allows claimants to issue certain types of county court claims under £100 000 by requesting the issue of a claim form electronically via the Court Service website. Claims started using Money Claim Online are issued by Northampton County Court and proceed in that court unless they are transferred to another court. See thewebsite for more information.
You can find more information on the court procedure page in this section.
Further useful information on payment for late invoices can be found at
If a debtor company fails to pay the debt within the time limit then insolvency proceedings may be started against the debtor company by the creditor. However, before a creditor can legitimately serve a bankruptcy petition upon a debtor, he must first serve a statutory demand upon the debtor for the outstanding debt.
It will not be possible to bring insolvency proceedings unless the debt is in excess of £750. However, a statutory demand can be served for any outstanding debt.
The actual statutory demand form is currently not available on this service. Please obtain a non-interactive copy fromwhere it can be found by performing a search using the term "Statutory Demand under Section 123".