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Initial steps to take


In order to recover a debt, three letters should be sent to the debtor

  • A reminder letter
  • A letter before action
  • A particulars of claim

The reminder letter:

This is up to your own internal credit control procedures, if you have any, as to whether you wish to send one or several letters to the debtor demanding payment.

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.

Letter before action

The letter before action is a demand for payment containing a deadline in which to respond, usually 7 days, failing which proceedings may be commenced. The demand is not only for payment of the amount due on the invoices, but can also claim interest on the amount owed for the period that payment has been outstanding, and is usually set out within your terms and conditions of business.

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.

Amount of interest

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 as amended and supplemented by the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013. 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 who are both businesses, 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 at the higher rate of 8% above the Bank of England Base Rate. 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).

Reasonable recovery costs

The fixed reasonable recovery costs are currently (as at September 2009):

Invoice Amount CostsClaim

Up to £999.99


£1000.00 to £9999.99


over £10,000


The Better Payment Practice Campaign has an interest calculator on their website which will assist you in calculating the applicable rate of interest: Interest calculator from The Better Payment Practice Campaign

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. The statutory rate of interest allowed to be claimed if you have no Contractual interest or unable to claim under the Act is 8%.

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

Your claim

There are different forms, timescales and documents to be used in each of the following courts. If the claim is for an amount up to £3,000, you can make use of the small claims court which has a less formal, faster approach by lodging an Application for Arbitration. All claims from £3,000 to £15,000 must be commenced in the county court by lodging a Civil Bill. If your claim is for more than £15,000, you can bring it in the high court by lodging a Writ. Proceedings should be issued where the contract arose or where the debtor resides or carries on business as stipulated by the rules of the court, should your debtor reside or carry on business outside our jurisdiction it may be possible to issue in your local court, however suggest that you seek legal advice as each case may vary.

To make a claim in Small Claims court, you will need to complete the claim form called Application for Arbitration.

However, you might also consider using the Court Online Service. This service allows claimants (you, the creditor) to issue claims under £3,000 by requesting the issue of a claim form electronically via the Court Service website.

You can find more information on the court procedure page in this section.

To issue proceedings in the County Court or the High Court, you should seek legal advice, as this can be a costly process.

Further useful information on payment for late invoices can be found at The Better Payment Practice Campaign

Statutory demand

If a debtor fails to pay the debt within the time limit then insolvency proceedings may be started against them 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. If the debt is still not repaid after the statutory demand is served or if the debtor does not enter a defence to the statutory demand then the creditor can proceed with bankruptcy proceedings.

It will not be possible to bring insolvency proceedings unless the debt is in excess of £750, unless multiple creditors wish to make a claim together.

There are a number of demands which can be used for individuals/partnerships/limited companies and on the basis of court orders/judgments. Details of these demands and information can be sought from the Enterprise, Trade and Investment website under heading "Insolvency Service".

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