Being owed money can put real pressure on an individual or business. An unpaid invoice, broken payment agreement or outstanding debt can affect cash flow, create uncertainty and take valuable time away from running your business.
If someone owes you money and informal requests for payment have not worked, there are several legal options available. The right approach will depend on who owes the money, why the debt arose, whether it is disputed and whether the debtor is likely to be able to pay.
At NBB Waldrons, our Dispute Resolution and Commercial Litigation team helps individuals and businesses across the West Midlands, and nationally, assess unpaid debts and take proportionate steps towards recovering the money they are owed.
Start by establishing exactly what is owed
Before taking formal action, it is important to establish the basis of the debt and gather the evidence supporting it.
Depending on the circumstances, this might include contracts, invoices, purchase orders, statements of account, emails, messages and records of previous requests for payment.
You should also consider whether the debt is genuinely undisputed. A debtor may argue, for example, that goods or services were defective, that the amount claimed is incorrect or that payment was not yet due.
Understanding the strength of your position at an early stage can help determine the most appropriate next step.
Try to resolve the debt informally
In many cases, an unpaid debt does not need to lead immediately to legal proceedings.
A reminder, telephone call or written request for payment may resolve the matter, particularly where the debtor has simply overlooked an invoice or is experiencing a temporary cash-flow problem.
It is sensible to keep clear records of correspondence and any payment proposals made.
Where informal attempts have failed, however, a more formal approach may be required.
Sending a Letter Before Action
A Letter Before Action, sometimes referred to as a Letter Before Claim depending on the circumstances, formally sets out the debt and warns that legal proceedings may follow if the matter is not resolved.
The letter will usually explain how much is owed, the basis of the debt, when payment was due and what action may be considered if payment is not made.
A formal letter can often prompt payment without the need to issue court proceedings. It also forms an important part of the pre-action process.
The precise procedure depends on the nature of the debtor and the claim.
Where a business is pursuing an individual, including a sole trader, the Pre-Action Protocol for Debt Claims may apply and imposes more specific requirements.
Read our guide: Letter Before Action for Unpaid Business Debts – What Businesses Need to Know.
Can you claim interest on an unpaid debt?
Depending on the circumstances, you may be entitled to claim interest in addition to the original debt.
For qualifying business-to-business transactions, the Late Payment of Commercial Debts legislation may allow a creditor to claim statutory interest and fixed compensation for recovery costs, unless contractual provisions apply instead.
The amount recoverable will depend on the nature of the transaction and the contractual arrangements between the parties, so it is important to establish the correct basis before adding interest or charges.
What happens if the debtor still does not pay?
If the appropriate pre-action steps have been followed and the debt remains unpaid, court proceedings may be considered.
A money claim can potentially result in a judgment requiring the debtor to pay the amount owed, together with any recoverable interest, court fees and costs where applicable.
However, issuing proceedings should be a commercial decision as well as a legal one. Before proceeding, consider:
- the strength of your claim
- whether the debtor has a genuine defence
- the value of the debt
- the likely legal and court costs
- the debtor’s financial position
- whether a judgment is likely to be enforceable
Obtaining judgment and actually recovering the money are not always the same thing.
What if you win but still do not get paid?
If a debtor does not pay following judgment, enforcement action may be necessary.
Depending on the debtor’s circumstances, possible enforcement methods can include using enforcement officers, seeking a charging order over property, applying for a third-party debt order or, for an individual in appropriate circumstances, an attachment of earnings order.
The best enforcement method depends on what assets, income or funds the debtor has.
If you have already sent a formal demand without success, read our guide: What Happens After a Letter Before Action? Your Business Debt Recovery Options.
Can insolvency proceedings be used to recover a debt?
Insolvency procedures can sometimes be relevant where a debtor is unable to pay an undisputed debt, but they should not be treated simply as an alternative method of pursuing a genuinely disputed claim.
Statutory demands, bankruptcy proceedings and winding-up proceedings carry significant legal consequences and require careful consideration.
Taking advice before pursuing an insolvency route can help establish whether it is appropriate and proportionate.
How long do you have to recover a debt?
Time limits apply to legal claims. For many straightforward contractual debts in England and Wales, the limitation period will generally be six years from the date the cause of action accrued, although the position can vary considerably depending on the nature of the debt and subsequent events.
Waiting too long can affect your ability to bring a claim, so early advice is sensible where a significant debt remains unpaid.
Layla Safieh adds: “Every debt recovery case is unique but our approach is always grounded in commercial sense. We focus on delivering pragmatic, results-driven advice while keeping our clients’ objectives firmly in view from the very start.”
Acting early can make a difference
Unpaid debts rarely become easier to recover with time. Businesses can close, individuals can move, financial circumstances can deteriorate and records can become harder to locate.
Taking proportionate action early can improve the chances of resolving the matter before it develops into a more costly dispute.
Our Dispute Resolution and Commercial Litigation team based in Birmingham, Cheltenham, Dudley and Worcester can review the circumstances, advise on the most appropriate recovery strategy and, where necessary, assist with formal demands, court proceedings and enforcement.
Need help recovering money you are owed?
If you are owed money and informal requests for payment have not worked, NBB Waldrons can help you understand your options and decide on the most commercially sensible next step.
Contact our Debt Collection and Recovery team to discuss your circumstances.
