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Reviewed by Adeel Bashir, Commercial Solicitor and Founder, Nouveau Legal (Middlesbrough and nationwide). Last updated 3 September 2026.
Short answer
Debt recovery for a small business in the UK follows five stages: check your contract and paperwork, chase commercially, send a formal letter before claim, issue a county court claim, and enforce the judgment. Most commercial debts never reach stage four. A solicitor’s letter before claim resolves a large share of undisputed invoices within 14 to 30 days, because it converts a chase into a documented legal step with a costs consequence attached.
You are also entitled to more than the invoice. Under the Late Payment of Commercial Debts (Interest) Act 1998 you can add statutory interest at 8 percentage points above the Bank of England base rate, plus a fixed compensation sum of £40, £70 or £100 depending on the size of the debt, plus your reasonable costs of recovery where those exceed the fixed sum. With the base rate at 3.75% following the Monetary Policy Committee decision on 30 July 2026, statutory interest currently runs at around 11.75% a year.
The law is about to get stronger. The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026 and would cap B2B payment terms at 60 days, make statutory interest mandatory, and give the Small Business Commissioner power to fine persistent late payers.
Why unpaid invoices are a bigger problem than most owners admit
Government figures published alongside the Commercial Payments Bill put the cost of late payment to the UK economy at £11 billion a year, with 38 businesses closing every day as a result and around 44% of invoices affected. Those are national numbers, but the mechanics are the same in a five person business as in a five hundred person one. Cash that has been earned but not collected is still working capital you have lent to your customer, interest free.
The practical problem we see most often is not that owners do not know they can chase. It is that they wait too long, chase informally by email for four or five months, and then instruct a solicitor at the point where the debtor has already run out of money. Recovery is a timing exercise as much as a legal one.
What counts as a commercial debt?
A commercial debt is a debt arising from a contract for the supply of goods or services where both parties are acting in the course of a business. That covers almost every unpaid trade invoice between two companies, and it is the category that attracts statutory interest and compensation.
It matters who the debtor is, because the procedure changes:
- Limited company debtor. No pre-action protocol applies. You can move to a letter before claim and then a county court claim relatively quickly, and a statutory demand is available for undisputed debts over £750.
- Individual or sole trader debtor. The Pre-Action Protocol for Debt Claims applies. You must send a detailed letter of claim with prescribed information and an information sheet, and allow 30 days for a response. Skipping this can lead to costs sanctions even if you win.
Getting this wrong at the first step is one of the more common self-inflicted wounds in small business debt recovery.
How much can you add to an unpaid invoice?
Two things sit on top of the debt itself: statutory interest and fixed compensation.
| Size of debt | Fixed compensation | Statutory interest |
|---|---|---|
| Under £1,000 | £40 | 8% above base rate (approx. 11.75% at Sept 2026) |
| £1,000 to £9,999.99 | £70 | 8% above base rate |
| £10,000 or more | £100 | 8% above base rate |
Three points that are frequently missed.
First, the reference base rate is fixed twice a year rather than moving daily. For debts becoming overdue in the second half of the year, the rate is the base rate in force on 30 June. Check the reference date that applies to your invoice rather than today’s headline rate.
Second, if your reasonable recovery costs exceed the fixed sum, you can claim the difference. Instruct a solicitor to recover a £12,000 invoice and incur £400 in reasonable costs, and you claim the £100 fixed sum plus the balance of those costs.
Third, your contract can specify a different rate, but only if it provides a substantial remedy. A clause setting interest at 2% a year is likely to be struck down and the statutory rate substituted. The Commercial Payments Bill would close this door entirely by making the statutory rate mandatory.
The five-stage debt recovery process
Stage 1: Check the paperwork before you chase
Before you send anything, confirm you can actually prove the debt. You need the contract or accepted terms and conditions, the purchase order or written instruction, evidence of delivery or completion, the invoice, and the payment history. If your terms were never accepted in writing, you may be relying on an implied contract, which is recoverable but harder.
This is also the moment to be honest about whether the debt is genuinely undisputed. A debtor who has raised a quality complaint in writing is a dispute, not a debt, and pushing a disputed debt down the insolvency route is a serious tactical error.
Stage 2: Chase commercially, but with a deadline
Two chases, seven days apart, addressed to a named finance contact and copied to a director. Reference the invoice number, the due date, and the fact that statutory interest is accruing. Keep it in writing. Verbal promises to pay are worth very little three months later.
Set an internal rule: if an invoice reaches 30 days past due with no payment plan agreed, it escalates. Most businesses do not have that rule and it costs them.
Stage 3: Letter before claim
This is the step that resolves most cases. A letter before claim from a solicitor sets out the debt, the interest and compensation claimed, the evidence relied on, and a deadline (14 days for a company, 30 days under the protocol for an individual or sole trader), and states that court proceedings will follow without further notice.
Its power is not the letterhead. It is that the letter creates a documented record which a judge will later read, and it signals that the creditor has already paid for advice and is therefore likely to continue.
Stage 4: Issue a county court claim
If the deadline passes, you issue a claim using form N1, or online through Money Claim Online, which carries a 10% discount on the issue fee and is available for claims up to £100,000 against no more than two defendants.
| Claim value | County court issue fee |
|---|---|
| Up to £300 | £35 |
| £300.01 to £500 | £50 |
| £500.01 to £1,000 | £70 |
| £1,000.01 to £5,000 | £115 |
| £5,000.01 to £10,000 | £205 |
| £10,000.01 to £50,000 | £455 |
| £50,000.01 to £100,000 | £585 |
Claims up to £10,000 are normally allocated to the small claims track, where recoverable legal costs are very limited even if you win. Above £10,000, costs recovery improves. That threshold should shape how much you spend on legal support at the outset.
The defendant has 14 days to respond, extendable to 28 if they file an acknowledgment of service. If they do not respond, you can request judgment in default, which is often where undisputed commercial claims end.
Stage 5: Enforce the judgment
A judgment is not money. Enforcement options include a warrant or writ of control (bailiffs or High Court enforcement officers, the latter available for judgments of £600 or more), a third party debt order against the debtor’s bank account, an attachment of earnings order, or a charging order over property. Judgments of £5,000 or more carry interest at 8% under the County Courts (Interest on Judgment Debts) Order 1991.
Statutory demand or county court claim: which route?
For a limited company debtor with an undisputed debt over £750, a statutory demand is an alternative that puts insolvency pressure on the debtor within 21 days. It is fast and it concentrates minds. It is also risky if the debt is disputed on substantial grounds, because the company can apply to restrain the petition and you may face an adverse costs order.
| County court claim | Statutory demand and winding up | |
|---|---|---|
| Minimum debt | None | £750 for a winding up petition |
| Suitable when debt is disputed | Yes | No, high risk |
| Typical timescale to pressure | 4 to 12 weeks | 21 days from service |
| Upfront cost | £35 to £585 issue fee | Statutory demand is low cost; a petition costs around £302 court fee plus a £2,600 Official Receiver deposit, of which £2,550 is refundable if no order is made |
| Best used for | Any commercial debt, disputed or not | Clean, undisputed debts where the debtor can pay but will not |
| Main risk | Time and cost if defended | Costs and possible injunction if the debt is disputed |
In practice we treat the statutory demand as a targeted tool, not a default. It works best against a solvent customer who is using you as a credit line.
How long do you have to chase an unpaid invoice?
Six years from the date the cause of action accrued, under section 5 of the Limitation Act 1980. In most invoice cases that runs from the date payment fell due, not the date of the invoice. Six years sounds generous, and it produces false comfort. The realistic window for recovering money in full is far shorter, because the debtor’s ability to pay is what expires first.
What the Commercial Payments Bill will change
The Bill, introduced on 19 May 2026 and described by the government as the biggest crackdown on late payment in more than 25 years, would:
- Cap payment terms in commercial contracts at 60 days, reducing to 30 days for public authorities, with limited exemptions. Non-compliant terms would be void.
- Make statutory interest at 8% above base rate mandatory, closing the loophole that lets parties agree a lower contractual rate.
- Give the Small Business Commissioner powers to investigate, adjudicate and fine persistent late payers.
- Impose new payment reporting duties on large businesses.
The Bill has not yet completed its passage and implementation is expected to be phased. The practical implication for now is straightforward: payment clauses you sign this year may need to be revisited, and if you are negotiating terms with a large customer, a payment period beyond 60 days is a clause worth resisting on the record.
The cheapest debt recovery is the contract you signed 12 months ago
Almost every difficult recovery we handle traces back to a document problem: no signed terms, no retention of title clause, no right to suspend supply, no clear payment trigger, or a purchase order that contradicts the supplier’s terms. Fixing that is a fraction of the cost of litigation.
The four clauses that do the most work:
- A clear payment trigger and period, with an express right to charge interest at the statutory rate.
- A right to suspend supply on non-payment, so you are not obliged to keep delivering to a customer who has stopped paying.
- Retention of title over goods until payment clears, with the drafting and practical steps needed to make it effective.
- A personal guarantee from a director where you are extending meaningful credit to a small company.
If your terms of business have not been reviewed in the last two years, our team can strengthen the way you contract with your customers and suppliers on a fixed fee, so the next unpaid invoice starts from a much stronger position. For the wider clause by clause view, read our guide to 7 red flags in business contracts that could cost you thousands, and if you sell online, website terms and conditions is where your payment terms need to live.
When should you instruct a solicitor?
Instruct early if any of the following apply: the debt is over £10,000, the debtor has gone quiet or changed their story, there is a dispute about quality or scope, the debtor is showing distress signals such as a late confirmation statement or county court judgments against them, or you have more than one unpaid invoice from the same customer.
Checking a debtor’s Companies House record before you escalate is 10 minutes well spent, and it is the same filing discipline we cover in our guide to company law compliance. Overdue accounts, a resigned director, or a recently appointed insolvency practitioner all change the calculation about whether to negotiate or move fast.
At Nouveau Legal we act for startups, SMEs and established businesses across the UK from our Middlesbrough base, on fixed fees and in plain English. If you are sitting on an unpaid invoice, the first call is free and usually takes 15 minutes.
Book your free call or ring 0333 335 1235 to talk through your options before the debt gets older.
Frequently asked questions
Can I charge interest on a late invoice if my contract does not mention it? Yes. Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 applies automatically to commercial contracts unless the contract provides a substantial alternative remedy. You do not need a contractual clause to claim it.
How much does it cost to recover a debt through the courts? The court issue fee ranges from £35 for claims up to £300 to £585 for claims between £50,000 and £100,000, with a 10% discount for claims issued through Money Claim Online. Solicitor costs vary, and for claims under £10,000 on the small claims track most legal costs are not recoverable from the debtor even if you win, which is why the pre-action stage matters so much.
How long does debt recovery take? An undisputed debt that settles after a letter before claim typically resolves in two to six weeks. A claim that ends in default judgment usually takes six to twelve weeks. A defended claim that goes to a hearing can take six to twelve months.
What if my customer has gone into liquidation? You become an unsecured creditor and must submit a proof of debt to the insolvency practitioner. Recovery rates for unsecured creditors are generally low. This is exactly the scenario retention of title clauses and personal guarantees are designed for, and it is why speed matters more than the six year limitation period suggests.
Should I use a debt collection agency or a solicitor? An agency can be effective on high volume, low value, clearly undisputed debts. A solicitor is the better choice where the debt is substantial, where there is any dispute, or where you may need to issue proceedings, because the same firm can take the matter from letter to judgment to enforcement without you starting again.
Do I have to send a letter before claim? For an individual or sole trader debtor, yes, and the Pre-Action Protocol for Debt Claims sets out what it must contain and gives 30 days to respond. For a limited company debtor there is no specific protocol, but the general practice direction on pre-action conduct still expects reasonable steps, and failing to give notice can affect costs.