When a customer or client fails to pay a business, the legal process for recovering the debt can depend significantly on who owes the money.
A business pursuing an individual or sole trader may need to follow a different pre-action process from one pursuing an ordinary company-to-company commercial debt.
Layla Safieh is a Solicitor in NBB Waldrons’ Dispute Resolution and Commercial Litigation team and advises clients on civil and commercial disputes, including matters involving unpaid debts and contractual disagreements.
Understanding the correct procedure at the outset can help businesses avoid unnecessary delay, reduce procedural risk and potentially resolve matters before court proceedings become necessary.
Does it matter whether the debtor is an individual or a company?
In short, yes. Where a business is claiming payment of a debt from an individual, the Pre-Action Protocol for Debt Claims may apply.
For the purposes of the Protocol, a business includes sole traders and public bodies, while an individual also includes a sole trader.
This means that a business seeking to recover money from a sole trader should take particular care when deciding which pre-action process applies.
By contrast, the specific Debt Claims Protocol does not ordinarily govern a straightforward debt owed by one limited company to another.
For company-to-company unpaid debts, see our related guide: Letter Before Action for Unpaid Business Debts: What Businesses Need to Know.
What is the Pre-Action Protocol for Debt Claims?
The Protocol is designed to encourage communication and exchange of information before legal proceedings begin. Its aims include helping the parties:
- understand each other’s position
- identify whether the debt is disputed
- exchange relevant information and documents
- explore repayment or settlement
- consider alternative dispute resolution
- avoid unnecessary court proceedings.
This is particularly important where an individual debtor may be experiencing genuine financial difficulty.
Responsible debt recovery does not mean ignoring commercial realities or failing to pursue legitimate debts. It means using a proportionate process that gives both parties an opportunity to understand and resolve the issue.
What is a Letter of Claim?
Where the Protocol applies, the creditor should normally send a compliant Letter of Claim before issuing court proceedings. The letter should contain sufficient detail for the debtor to understand:
- the amount claimed
- how the debt arose
- whether interest or other charges are being claimed
- details of the relevant agreement
- how payment can be made
- how the debtor should respond.
The Protocol also requires specified information and response documentation to be provided.
This is why a short letter simply stating “pay within seven days or we will issue proceedings” may not be sufficient where the Protocol applies.
How long should the debtor be given to respond?
Under the Debt Claims Protocol, an individual debtor should generally be given 30 days from the date of the Letter of Claim to respond.
That period is materially different from deadlines sometimes used in ordinary commercial demands. If the debtor responds, the appropriate next step depends on what they say. They may:
- accept the debt
- dispute all or part of it
- ask for further information
- request time to obtain advice
- propose instalments or another payment arrangement.
The creditor should consider the response before deciding whether proceedings are appropriate.
What if the debtor asks for more information?
A debtor may request documents explaining or supporting the claim. That could include:
- the underlying contract
- invoices
- statements of account
- correspondence
- details of payments already made
- calculations of interest or charges.
Good record keeping therefore plays an important role in debt recovery.
A business with a clear paper trail is generally in a stronger position to explain and evidence why money is due.
What if the individual cannot afford to pay immediately?
Where a debtor acknowledges the debt but says they cannot pay in full, they may propose a repayment arrangement.
This does not mean the creditor must automatically accept any offer.
However, the creditor should consider whether an affordable and realistic arrangement may produce a better commercial outcome than immediate litigation.
The broader business environment also matters. Government guidance on business debt and continuity options highlights the range of financial difficulties and insolvency situations that can affect businesses and individuals.
Understanding whether a debtor is temporarily struggling or fundamentally unable to pay can help shape the recovery strategy.
What if the debt is disputed?
A disputed debt requires careful assessment.
A debtor may argue that:
- no contract existed
- the goods or services were defective
- the amount charged is incorrect
- payment has already been made
- another contractual obligation was not fulfilled.
In those circumstances, the matter may become a wider contractual dispute rather than a straightforward debt claim.
Negotiation or mediation can sometimes resolve matters more quickly than court proceedings.
Government guidance on options where money is owed specifically identifies mediation as one possible route before or alongside court action.
Why proportionate debt recovery matters
The wider debt recovery sector is increasingly recognising the importance of combining firm action with fair and transparent communication.
Real Business recently profiled a commercial debt recovery model built around maintaining communication and, where possible, preserving customer relationships while still pursuing payment.
That principle can be particularly relevant when an individual debtor is a long-standing customer or sole trader with whom the creditor may wish to continue doing business.
The aim is not to avoid taking action where payment is legitimately due. It is to choose the route most likely to result in a practical recovery.
What if the debtor does not respond?
If the appropriate Protocol requirements have been satisfied and the debtor does not respond, the creditor may be able to issue a County Court claim.
Before doing so, it is worth considering:
- the strength of the evidence
- whether the debtor has assets
- whether they are employed
- whether they own property
- whether there are signs of insolvency
- the likely cost of proceedings and enforcement.
Obtaining judgment and recovering money are two separate stages.
For the next part of the process, read our guide: What Happens After a Letter Before Action? Your Business Debt Recovery Options.
Limitation periods should not be overlooked
Businesses should also avoid allowing debts to drift indefinitely.
For many contractual claims in England and Wales, a six-year limitation period may apply, although the precise position depends on the facts and can be affected by matters such as acknowledgment or part payment.
Legal advice should be taken where limitation may be approaching.
Layla’s angle on this is: “One of the first questions we need to ask in any debt recovery matter is who actually owes the money. The pre-action procedure for an individual or sole trader can be different from a straightforward company debt.
“Following the correct process gives both parties an opportunity to understand the position and potentially reach a resolution before proceedings are issued. It also helps the creditor make a more informed decision about whether litigation is likely to be worthwhile.”
How NBB Waldrons can help
Our UK Debt Collection and Recovery team advises businesses on recovering unpaid debts from individuals, sole traders and commercial organisations.
We can help determine which pre-action procedure applies, prepare the appropriate correspondence and advise on settlement, proceedings and enforcement.
For a broader introduction to the available options, read Are You Owed Money? How to Recover Unpaid Debts Legally and Effectively.
NBB Waldrons acts for businesses nationally and has offices in Birmingham, Cheltenham, Dudley, Kingswinford, London, Merry Hill, Walsall and Worcester.
