Chasing Debts and Stopping Late Payments

Chasing Debts and Stopping Late Payments

Delivering your invoice
Chasing a debt
Debt collection agents
Statutory Demands
Remedies that do not involve litigation


If your client or customer fails to pay on time, the one thing you should not do is nothing.  While you may not want to pursue the debt immediately, be sure to have a system in place so that it comes to your attention and that you send a reminder to the client as a matter of course – preferably no later than a week after the date the payment was due.

The key to chasing up debts is clarity. You need to make sure that there can be no doubt as to the debt, the fact that the debt is owing and that there is no reason why the customer/client owing the money should not pay.

So, bearing this in mind, before you start chasing debts, you need a couple of things.  First and most important, properly agreed terms of business.  Everything else should flow from this point.  As stated previously, this document needs to  clearly state the terms of  payment and, before that, invoicing.  Well written terms of business manage the expectation of both parties to the contract.

As part of those terms you should have very clear payment provisions allowing for payment of invoices validly sent.  The only reason that someone should be able to give for non-payment is that an invoice is not valid.  By valid, we are not saying that the recipient doesn’t like it.  Valid means that it is delivered the right way in accordance with the terms of business.

The terms should also state what you will do if you are not paid on time.  Interest can be charged on late payments and this will be discussed later. Ideally, but not necessarily, these terms have been signed by your customer/client.  They might have agreed them by saying so via email for instance.

Whichever way the terms have been agreed, hopefully you are now using an agreed set of clear terms of business.

Delivering your invoice

It is important that you deliver your invoice in a way that you can actually track the fact that the invoice has been sent and when it was sent.  Dating the invoice goes without saying, but in addition to that you need  a reliable system in place that will mean that if you are questioned later on how you know when an invoice was sent, you can not only answer the question, but do so with supporting evidence.  We are trying here to avoid the complaint from a client that they didn’t receive your invoice.

For instance, if you send invoices by post, be sure to use first class stamps. And it can do no harm to email a copy of the invoice to the client the same day. The email records can be useful if the client tries to say the invoice was never received.   If you vary the way in which you process invoices, you will not be able, with certainty, to insist to a client that an invoice was sent to them and should have been received on a certain date. Remember, clarity.

Chasing a debt

The temptation when starting up a new business is to not annoy your clients by chasing for money.  You might be worried that by chasing them you look like you are desperate or that you might upset them in some way that they may not come back to you next time.  Remember, they need you, they came to you for a service or a product.  They agreed to pay and they are expecting to pay.  So, chasing them is more about reminding them of their promise than anything else.

Do not leave an overdue debt to fester.  You might want to have in your process a step that ensures that a couple of days before payment is due a message is sent to remind them that, “to avoid late payment and charges associated with late payment, you should arrange to pay us today!”  It doesn’t need to be long, just a quick reminder.  On the other hand you might want to leave it to the day after payment was due and then send them a message stating that payment is overdue.  If you go down this route, it is important to add certain other key elements into your letter or email or telephone conversation.  Cut to the chase and tell them that you are calling because there is an outstanding invoice.  This may seem obvious, but we often hear of instances where the main point of the call was buried in a lovely conversation about the weather!  Clarity.

The next step is to make sure that all correspondence and dialogue (including text messages, emails and phone calls) following delivery of the invoice are documented.

But bear in mind that  insisting on being paid immediately isn’t always the best course of action, even though it might well be your legal right.   Sometimes showing a little understanding to a customer or client who is having cashflow issues will mean that you get paid sooner than those leaning on them.  But don’t suffer on their behalf!

Hopefully, you can avoid the threatening letter stage but if you have to write that letter, you now have all the ingredients for a irrefutable letter to hand and the documenting process will make life significantly easier for you.

A good letter will incorporate the following elements:

1)  Make reference to the amount of the debt, the invoice in which it was charged, the date of that invoice and the date on which the amount became payable.

2)  State the steps taken by you to recover the debt, with every step listed.  If you made 10 calls on 10 different dates, putting in the time of the call is a great way to demonstrate that you are more than on top of the situation.

3)  If they made any excuses for not paying, it is worth mentioning them.  Remember, if you have drafted your terms and conditions well and you performed your part of the contract , they can be no reason for not paying, only excuses.  Excuses don’t cut it with a court.  For instance, you might have been faced with the excuse that, “We are tight on cash this week, but we should be receiving payment from a client next week, can we pay you then?” To which you should have answered, “Great, we will call you on <date> to confirm that payment has been sent”. Referring to this in your letter again shows that you are more than on top of the situation.

4)  If they have a reason for not paying, for instance, “We aren’t paying because the work wasn’t up to scratch”, note when this reason came into play.  If it only cropped up after the payment date had passed, despite you conversing with them in the meantime, say as much in your letter.  Also note that (hopefully) your terms and conditions do not allow them to withhold monies in this situation.

5)  Outline in detail your expectation.  When you will receive, what amount of money (all or part or instalments etc)

6)  Outline what steps you will be taking if your expectation is not met.  Legal action is the obvious course of  action at your disposal, but you should make it clear that any deals will be off if you go down this route and that you will only be looking to recover the whole amount that was due at the outset.

7)  And include as a final point that if you do have to go to court (which you would obviously rather not do) that you will be claiming for costs of going to court, plus any interest that can be claimed for relating to the late payment of the debt (see Interest, below).  Interest can be charged from the date the payment becomes due and you do not need to go to court to claim this interest.   However, as an incentive to settle rather than to go to court it can be useful to hold this back.    (Interest can be significant and this is referred to in more detail later.)

The point here is to write a letter that in itself documents what has happened to date and what will happen. Again we are being as clear as possible here.

Having said what you will do in the event of non-payment, this is the point where you have to follow through on what you proposed.  Any weakness here shows that they can get away with it.  If you said non-payment in 7 days means that they will find proceedings being issued, then that is what you should be set up and ready to do.  If you said legal action will be taken, then you open up more options as to what happens next, but a clear step should be demonstrated after 7 days if that is what you promised.

The next step is to make sure that in all correspondence and dialogue following delivery of the invoice is documented.

Sooner or later you will need to write a formal letter threatening proceedings and you will also need to decide how to deal with this: making the threat and not following up is a sign of weakness, so plan your approach in advance.

There are various legal routes available to you in the event that all your reasonable approaches have resulted in nothing.  The obvious one is to instruct a solicitor or a debt collector.  However, if you have followed this guide and particularly the section preceding this, you should be able to take matters into your own hands for limited additional cost.

Debt collection agents

Due to the high cost of solicitors in relation to debt recovery, debt collection agencies have really come into force.  Fee structures vary, but usually involve a sign up fee of a nominal amount and then a percentage of the amount recovered.  No agency will guarantee 100% recovery; however, if you have taken all the steps recommended in this pack and pass this information onto an agency,we would be surprised if they didn’t recover from all but the insolvent!  Doing an internet search for “debt collection agency” will give you ample choice, but to know if an agency is good or not is a little more hit or miss.  You should keep your ears open for debt collection agents who are polite and courteous.  They do exist and they can make the difference between retaining the customer or not.  You may have been on the receiving end of such an agent.  If so, you will know what we mean.  Call them up! If you have a routine you use and a agency forms part of this routine, you should find that if they are polite, your customers will never hold it against you.

Statutory Demands

A statutory demand is a bit like using a sledge hammer to crack a nut.  Whether it works for you or not, you will look a bit like a bully for using it.  That being said, sometimes it can be used to great effect, especially if you do not wish to retain that customer!  So what is a statutory demand and when can you use it?

A statutory demand (often just referred to as a stat demand) is a legal notice from a creditor to a debtor giving them 21 days to settle a debt before a winding up petition may be issued and it is because of this that it is so emotive and often effective.  A petition winding up a company can only be issued if the amount owed is greater than £750 and the basic fee is £1600.   So it is not cheap and it can be risky.  If you serve a stat demand on someone, remember that you are promising to go down the route of winding up petition. Don’t follow through and it makes you weak.

It is essential that a statutory demand is completed correctly and served (delivered) to the recipient correctly.  Any error in the form or the process is likely to mean that you will not be able to follow through with a winding up petition.  So you need either to study the rules very carefully or engage a specialist to advise you.

You cannot use a statutory demand in a situation where there is a possible dispute over the sum to be paid.  If, for instance, you do not have a clause in your terms and conditions stating that monies cannot be withheld in the event of dispute and your customer has indicated that there was an issue with the service or product being supplied,“ then a statutory demand will likely be pointless.  Equally, even if they have not told you that there was an issue with the product or service, if they can manufacture one then a statutory demand will fail.

All being said though, if you want to make someone pay up, most people react pretty promptly to a statutory demand.  The threat of winding up can be quite sobering.  But as stated before, it is a sledge hammer, so don’t expect to remain on speaking terms after its’ use.

Issuing proceedings yourself

For sums under £100,000 there is the very useful Money Claim Online Service (  Being an official government site (part of Her Majesty’s Court Service) there is a great guide to its use that can be found at

The User Guide for Claimants is fantastic and if you have followed the advice here, you should find it pretty pain free.

  Remedies that do not necessarily involve litigation

 As well as taking steps to recover the debt, there are other remedies to consider and these are set out below

Interest.          When your client or customer is a business and fails to pay,  you may have a clause in the contract which entitles you to contractual interest  – e.g. a statement that “The supplier shall be entitled to claim interest on any overdue payment at the rate of 4 per cent per annum above the base rate of Barclays Bank calculated on a daily basis form the due date until the date that the payment is received in cleared funds by the supplier”.

However, it may be better not to have such a clause and, instead, to rely on your rights under the Late Payment of Commercial Debts (Interest) Act 1998.  This allows a business to claim interest as a matter of right at 8 per cent above base rate.

It is not necessary for you to have notified your customer at the start of your relationship with them of your intention to charge late payment interest and you do not have to refer to it in your contract. However, it is recommended that you amend your terms and conditions and make reference to your statutory right to interest in future contracts, as this may act as a deterrent against late payment.

This interest can only be claimed on business to business transactions and under the current legislation, businesses can claim reasonable debt recovery costs as well as benefit from the simplification of the calculation of the statutory interest.   Although the interest rate is in principle 8% above Bank of England Base Rate, since this can change quite often, making the calculation quite complex, the rate is now fixed every six months. At the time of writing it is 8.5% p.a.  For an up-to-date calculation there is an excellent website that can help you:      This website also gives details of the debt recovery costs you are legally entitled to claim.

Suspend work            If you are not getting paid, you may decide it is a good idea to stop work. The problem is that unless you have the right to do this, your action could trigger a claim by the client.  So be wary of taking this step unless your contract terms have suitable wording to permit this.

If, however, you are working in the construction industry, the law allows you to suspend work.  Under the Housing Grants, Construction & Regeneration Act 1996,as amended,  unless the client has given a formal notice that he intends to withhold money,  if a contractor has  not been paid in full by the due date, he has the right to suspend performance of his obligations after giving the client at least seven days’ notice of his intention to pay less than the invoiced amount.  The right to suspend performance ceases when the client makes payment in full of the amount due.

The law does not apply to work on a private house.

So, unless you are in the building industry, consider inserting a clause in your contract that gives you the right to suspend work if any payment is overdue.  This is a less drastic remedy to termination and may be just what is needed to bring the client to his senses.  A sample clause could read:

“If the client fails to pay any amount properly due under the contract by the due date, the supplier, without prejudice to his other rights, may, after giving three days’ notice to the client, suspend performance of the services until payment is made in full.  Any dates or periods for performance in the contract shall be extended to take account of any period of suspension.”

Terminate the contract         Non-payment should be a specific ground enabling a supplier to give notice to terminate a contract.  Unless things are really bad, suppliers for obvious reasons are reluctant to bring the contract to an end, but unless you have that contractual right, there could be a possibility that the client might claim for unlawful termination.

If you do get to this stage, be sure to do exactly what the contract requires with regard to  the form and content of the notice, otherwise it could be invalid and a damages claim filed against you.  Also, take the practical precautions open to you. For example, if you are installing equipment in the client’s offices for which you have not been paid, you may want to remove the equipment immediately before you give the termination notice as it is most unlikely you would get access to recover it after the notice hits the client’s desk.

Alternative Dispute Resolution (ADR).     

Over the last 20 years, a variety of methods of resolving disputes without going to court have been developed, mediation being the most widely known.  Mediation (sometimes called conciliation) is a process whereby a mediator is appointed by the parties to try to assist them in resolving the dispute.  The mediator does not act as a judge but rather as a go-between or a facilitator, listening to each party, often in private, and helping them to work out a solution.  It is for the parties themselves to agree on a resolution of the dispute: the mediator cannot impose a decision on them.  Mediation is essentially a consensual procedure and there are advantages in providing for mediation in the contract.  Without such a clause, there may be suspicion at the time the dispute arises if one party or the other suggests mediation.  By having it as part of the contractual procedure, that suspicion should not arise.

Reference to an independent expert is sometimes advisable, especially on technical issues.  For example, in a contract for the supply of gas, if there is some dispute over the quality of the gas being supplied, this is probably best resolved by an independent expert acceptable to both parties.  Similarly, disputes over complex accounting matters are sometimes best referred to an independent accountant rather than to the courts.   Usually, a clause providing for expert determination will state that the decision of the expert will be final and binding on the parties.  This is not always desirable, especially if very substantial sums of money are involved.

In the construction industry, a party to a contract can demand the right to have the dispute referred to adjudication before court proceedings are started. Adjudication is an interim process where an independent adjudicator has to make a decision on the dispute within 28 days of the case being referred to him. And his decision is binding and must be implemented pending any appeal to the courts.  The law that introduced this statutory right to adjudication only applies to contracts for ‘construction services’ and it does not apply to disputes between a house owner and his builder.  But the process can still be adopted by parties to a contract if they so wish.

There are various organisations who can advise on ADR, the leading one being CEDR, the Centre for Effective Dispute Resolution.   Online mediation is also mow possible.

ContractStore has a model appointment of a mediator, a model form of appointment of an adjudicator and  free guidance notes on ADR


Checklist for Getting Paid & Chasing Debts.

  1. Contract specifies when each payment is due and the amount or method of calculation
  2. Issue invoices as stipulated in the contract
  3. Establish internal controls to monitor payments
  4. Send reminder just before (or just after) the payment date
  5. If no payment received within a week, contact buyer
  6. Send further reminder (with deadline for payment and reference to interest and possible action for recovery)
  1. Commence recovery process by:
  • Instructing debt collectors or
  • Instructing solicitors or
  • Commencing action in the small claims court or
  • Serving a statutory demand
  1. Also consider:
  • Giving notice to buyer to suspend work under the contract
  • Giving notice to terminate contract
  • Claiming ‘lien’ over unpaid goods/recovering unpaid goods from buyer (i.e. the right to hold those goods as security for the debt)
  • Calling on any payment guarantee that has been provided by the buyer


  • A supplier can only sue for the price if the buyer has wrongfully failed to pay an amount that is properly due under the contract within the time specified for payment in the contract.
  • Maintain relationship with buyer
  • Consider compromise if this is offered/can be achieved at acceptable level
  • Do not issue statutory demand unless there is no defence to the claim for payment.