How to recover an unpaid business debt

Check the debt before you chase it

Before you escalate, confirm what was agreed and with whom. Find the contract, quotation or terms of business, the purchase order, the proof of delivery or completion, the invoices, and any correspondence in which the customer accepted the work or promised to pay. If the customer has complained about quality or disputes the amount, deal with that first, because a genuine dispute changes which recovery routes are open to you.

Make sure you are pursuing the right party. A limited company is a separate legal person from its directors, so the claim must be against the company named in the contract, using its registered name and number from Companies House. A trading name on an invoice is not enough. If you dealt with a sole trader, the claim is against that individual, and a separate pre-action protocol applies.

Check the dates as well. Under the Limitation Act 1980, a court claim for a contract debt must usually be started within six years of the date the money became due. If the debtor acknowledges the debt in writing and signs the acknowledgment, or makes a part payment, the six years start again from that date, so keep any signed letter or document in which the customer accepts what it owes.

Interest and compensation you can add to a late invoice

Where you and your customer were both acting in the course of a business and the contract was for goods or services, the Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to statutory interest and fixed compensation when an invoice is paid late. The Act does not apply to consumer customers, or to consumer credit agreements and contracts that operate as a mortgage, charge or other security.

A payment is late once the agreed payment date has passed. If no date was agreed, it becomes late 30 days after the later of the day you delivered the goods or performed the service and the day the customer received notice of the amount, which is usually your invoice. Where businesses agree a payment period longer than 60 days, the 60-day limit applies instead unless the longer period is not grossly unfair to the supplier. Where the customer is a public authority, the limit is 30 days.

Statutory interest is simple interest at 8% a year above the Bank of England base rate, and the base rate used is fixed for each half of the year. The rate in force on 31 December applies where interest starts to run between 1 January and 30 June, and the rate in force on 30 June applies where interest starts to run between 1 July and 31 December. The base rate was 3.75% on both 31 December 2025 and 30 June 2026, so the statutory rate for debts on which interest started to run during 2026 is 11.75% a year. For example, say a customer pays a £12,000 invoice 60 days late and the interest started to run in August 2026. The interest is £12,000 multiplied by 11.75%, divided by 365 and multiplied by 60, which comes to about £231.78.

Once statutory interest starts to run, you can also claim a fixed sum for each late payment: £40 where the debt is under £1,000, £70 where it is £1,000 or more but under £10,000, and £100 where it is £10,000 or more. If your reasonable costs of recovering the debt are higher than the fixed sum, the Act entitles you to the difference as well, although how much of your legal spending a court will allow under that heading depends on the circumstances.

Your contract can set its own interest rate for late payment. If it does, that remedy normally replaces statutory interest, but only if it is a substantial remedy. A term that tries to exclude interest altogether, or that provides a remedy too small to compensate the supplier or deter late payment, can be void, in which case statutory interest applies.

This area of law is due to change. The Commercial Payments Bill, introduced in Parliament in May 2026 and still going through it, would impose maximum payment terms of 60 days between businesses, with limited exceptions, and make interest on late payment mandatory at 8% above base rate. It is not law yet, and the Government has said the new rules will not apply retrospectively.

The letter before action

If reminders, a statement of account and a call to the person who approves payments have not worked, the next step is a formal letter before action. The court expects one before a claim is issued, and ignoring the pre-action rules can cost you interest or costs later, even if you win.

Where the debtor is a company, or any other business that is not a sole trader, the Practice Direction on Pre-Action Conduct applies. Your letter should set out the basis of the claim, a summary of the facts, what you want and how the amount is calculated, including any statutory interest and compensation. For a straightforward debt, the Practice Direction treats 14 days as a reasonable time for a reply. Enclose the invoices and a statement of account, and say that you will issue a claim if the debt is not paid by the deadline.

Where the debtor is an individual, including a sole trader, the Pre-Action Protocol for Debt Claims applies and is more detailed. The letter of claim should be dated at the top, sent by post and state the amount of the debt and whether interest or other charges are continuing. It should enclose an up-to-date statement of account, the Information Sheet and Reply Form set out in the Protocol, and a Financial Statement form. If the debtor does not reply within 30 days of the date on the letter, you may start proceedings. If they reply saying they are seeking debt advice, you must allow a reasonable period for it, and in any event should not start proceedings until at least 30 days after receiving the completed Reply Form or after providing any documents they asked for, whichever is later.

Making a court claim and what it costs

If the debt is still unpaid, you can issue a claim in the County Court. A claim for a fixed sum can usually be made online, and Money Claim Online accepts claims of up to £99,999.99. Some claims cannot be made online, including claims against three or more defendants and claims where either side has no address in England or Wales, and those are made on paper claim form N1. A money claim can be started in the High Court only if it is worth more than £100,000.

The issue fee depends on the amount claimed, including interest, and a hearing fee is payable if a defended claim goes to a hearing. These are the fees in the HM Courts & Tribunals Service fee list updated in July 2026. If you win, court fees can usually be recovered from the debtor.

Amount claimed	Fee to issue the claim	Hearing fee if the claim goes to a hearing
Up to £300	£35	£27
£300.01 to £500	£50	£59
£500.01 to £1,000	£70	£85
£1,000.01 to £1,500	£80	£123
£1,500.01 to £3,000	£115	£181
£3,000.01 to £5,000	£205	£346
£5,000.01 to £10,000	£455	£346
£10,000.01 to £200,000	5% of the amount claimed	£619 on the fast track; £1,334 on the intermediate track or multi-track
Over £200,000	£10,000	£1,334

Claims worth £10,000 or less are normally allocated to the small claims track. If the debtor defends a claim of that size, you will usually be told you must attend a free telephone mediation appointment of up to an hour with the court's small claims mediation service before any hearing. On the small claims track, the legal costs you can recover from the debtor are limited to fixed issue costs, court fees and certain expenses, unless the debtor has behaved unreasonably, so weigh that when deciding how much professional help to pay for on a small debt.

If the debtor does not respond: default judgment

A claim form sent by post is treated as served on the second business day after it was posted. The debtor then has 14 days from service of the particulars of claim to pay, admit the claim, file a defence or file an acknowledgment of service. Filing an acknowledgment gives them 28 days from service of the particulars of claim to file a defence. If they do none of these things in time, you can ask the court to enter judgment in default, online if you claimed online, or on form N225 for a fixed sum claimed on paper.

The debtor can apply to set a default judgment aside. The court must do so if it was wrongly entered, for example because the time for responding had not expired or the debt had already been paid, and it may set it aside if the debtor shows a real prospect of defending the claim or some other good reason, taking into account whether they applied promptly. If the debtor admits the debt but asks for time to pay, you cannot obtain default judgment. You can accept their proposal for payment, or if you reject it the court will decide the rate of payment.

If a debtor does not pay a County Court judgment in full within a month, a record of it is kept on the public register of judgments for six years, which makes it harder for them to obtain credit.

How to enforce a judgment

If the debtor still does not pay after judgment, you need to choose an enforcement method, and the right choice depends on what the debtor owns and earns. If you do not know that, you can apply for an order requiring the debtor, or an officer of a debtor company, to attend court and answer questions on oath about income, assets and debts. The court fee for that application is £69. The main enforcement methods and their court fees are these.

• Warrant or writ of control. Enforcement agents take control of goods that can be sold to pay the debt. A County Court warrant of control costs £96 and cannot be used for £5,000 or more. Judgments of £600 or more can be transferred to the High Court for enforcement by a High Court enforcement officer under a writ of control, with a sealing fee of £82, and judgments of £5,000 or more must be enforced there, unless the debt arises under a regulated consumer credit agreement.
• Third-party debt order. This freezes money held for the debtor by a third party, usually a bank, and the court can then order it to be paid to you. The fee is £139.
• Charging order. This secures the debt against land or property the debtor owns, so it is paid when the property is sold, and you can later apply for an order for sale. The fee is £139.
• Attachment of earnings order. For an individual debtor in employment, this requires the employer to deduct regular amounts from their pay. It is not available against a company. The fee is £139.

If a company has no assets, or an individual has no income or property, enforcement may produce nothing. You have six years from the date of the judgment to bring proceedings on it, and a warrant or writ of control cannot be issued without the court's permission once six years have passed.

Statutory demands, winding-up and bankruptcy petitions

Insolvency procedures can also be used to recover a debt, but they are collective procedures for debtors who cannot pay, and they should not be used to put pressure on a debtor over a debt that is genuinely disputed. The court can stop a petition presented on a disputed debt, and the creditor can be ordered to pay the costs.

A statutory demand is a formal demand for payment in a prescribed form. For a company, it can be served for an unpaid debt of more than £750 by leaving it at the company's registered office. If the company does not pay, secure or settle the debt to your reasonable satisfaction within three weeks, it is treated as unable to pay its debts, and you can present a petition to wind it up. A statutory demand is not always needed first: an unsatisfied judgment, or other evidence that the company cannot pay its debts as they fall due, can also support a petition. A company cannot apply to set aside a statutory demand. If it disputes the debt, it has to apply to the court to stop a petition being presented.

Presenting a winding-up petition costs a court fee of £352 and a petition deposit of £2,600. The petition must be served on the company and advertised in The Gazette at least seven working days before the hearing. Once a petition has been presented, any disposition of the company's property is void if a winding-up order is later made, unless the court orders otherwise, so the company's bank may freeze its accounts once it learns of the petition. If a winding-up order is made, the Official Receiver takes charge of the company, and you become one of its creditors, who may receive only part of what they are owed, or nothing.

For an individual, including a sole trader, the equivalent step is a bankruptcy petition, which can only be based on an unsecured debt, or debts, of at least £5,000. An individual has 21 days to pay a statutory demand and 18 days from service to apply to the court to set it aside. A creditor's bankruptcy petition costs a court fee of £352 and a deposit of £1,500.

Deciding whether a debt is worth pursuing

Before you spend money on recovery, compare the size of the debt with the likely cost and check whether the debtor can pay. For a company, look at its filed accounts and any charges registered against it at Companies House, and check The Gazette for notices of winding-up petitions or insolvency. For any debtor, a search of the register of judgments shows whether others already have unpaid judgments. If a company has already gone into administration or has been ordered to be wound up, legal action against it needs the consent of the administrator or the court's permission, and the usual course is to submit your claim to the office-holder instead.

A clear letter before action, with the correct interest and compensation and a credible intention to issue a claim, is often enough to recover a debt. Where the debtor plainly has no money, the sensible course may be to stop spending on recovery and ask your accountant about writing the debt off.

For the future, the best protection is in your terms of business: clear payment terms, a late payment interest clause, a retention of title clause for goods, credit limits, deposits or stage payments, and personal guarantees from directors for trade credit accounts. We can take a debt from the first letter through court and enforcement, and we agree the scope and cost with you in writing before we start.

Frequently asked questions

How much interest can I charge on a late business invoice?

If your customer is a business and your contract does not set its own rate, you can usually charge statutory interest at 8% a year above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998. The base rate used is the one in force on 31 December or 30 June before interest starts to run, and for debts that began to carry interest in 2026 the rate is 11.75% a year, charged as simple interest. You can also claim fixed compensation of £40, £70 or £100 depending on the size of the debt.

How long does a debtor have to reply to a letter before action?

A company or other business debtor should reply within a reasonable time, which the Practice Direction on Pre-Action Conduct puts at 14 days for a straightforward case. If the debtor is an individual or a sole trader, the Pre-Action Protocol for Debt Claims gives them 30 days from the date of the letter to reply, and the letter should enclose the Protocol's Information Sheet, Reply Form and a Financial Statement form. Issuing a claim before these periods have passed can count against you on costs and interest.

How much does it cost to take a customer to court for an unpaid invoice?

The court fee to issue a money claim ranges from £35 for claims up to £300 to 5% of the amount claimed for claims over £10,000, with a maximum of £10,000. If the claim is defended and goes to a hearing, there is a hearing fee, which on the small claims track ranges from £27 to £346. Enforcement has its own fees, such as £96 for a County Court warrant of control. Court fees can usually be recovered from the debtor if you win, but on small claims most of your own legal costs cannot.

What happens if the debtor ignores the court claim?

If the debtor does not respond within 14 days of service of the particulars of claim, or files an acknowledgment of service but no defence within 28 days, you can ask the court for judgment in default. You can then enforce the judgment, for example through enforcement agents, a third-party debt order against a bank account or a charging order over property. The court must set a default judgment aside if it was wrongly entered, and may set it aside if the debtor shows a real prospect of defending the claim.

Can I use a statutory demand instead of going to court?

You can serve a statutory demand without first bringing a court claim if the debt is due and not genuinely disputed. For a company the debt must be more than £750, and for a bankruptcy petition against an individual it must be at least £5,000. If the demand is not met within three weeks, you can petition to wind up the company or make the individual bankrupt. It is a serious step that affects all the debtor's creditors, and using it for a disputed debt can lead to the petition being stopped and an order that you pay the costs.

How long do I have to recover a business debt?

You usually have six years from the date the payment was due to start a court claim for a contract debt. If the debtor acknowledges the debt in a signed written document, or makes a part payment, the six years start again from that date. Once you have a judgment, you have six years to bring proceedings on it, and after six years a warrant or writ of control needs the court's permission. GOV.UK guidance says a statutory demand cannot usually be made for a debt more than six years old.

What if the company that owes me money goes into liquidation or administration?

Once a company is in administration or has been ordered to be wound up, you normally cannot continue legal action against it without the administrator's consent or the court's permission, and your claim is dealt with by submitting it to the office-holder. Unsecured creditors generally rank behind the costs of the procedure, secured creditors and preferential creditors, so they often receive a small proportion of the debt or nothing. If your terms include a retention of title clause, tell the office-holder quickly, because unpaid goods may still belong to you.

Sources & further reading

• Ministry of Justice — Practice Direction: Pre-Action Conduct and Protocols
• Ministry of Justice — Pre-Action Protocol for Debt Claims
• GOV.UK — Late commercial payments: charging interest and debt recovery
• Bank of England — Official Bank Rate history
• GOV.UK — Make a court claim for money
• HM Courts & Tribunals Service — Civil court fees (EX50)
• GOV.UK — Make and serve a statutory demand, or challenge one
• GOV.UK — Wind up a company that owes you money

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 17 September 2026. AD Solicitors is a trading name of AD Solicitors Limited, a recognised body regulated by the SRA (no. 8011228).