What is the process for debt recovery?

Blogs 23 Aug 2023

Client not paying? Learn about the debt recovery process and the steps you can take to recover money owed to your small business.

Business owner doing paperwork in studio

Unpaid invoices are unfortunately all too common as a small business owner. In fact, 52% of businesses reported experiencing late payments in 2022 in a report by the Federation of Small Businesses. 

We know how important is it that you get paid what you are owed by your customers and clients on time, whether it's a one-off gig or a regular retainer fee. People trying to avoid paying for goods and services can be costly to your business and have long-lasting and damaging repercussions.

In this article, our debt recovery specialists at FSB Debt Recovery explain what steps you should follow when experiencing late payments, and the options available to you. 

What to do when someone doesn’t pay

1. Invoice as normal

Check that your invoices clearly contain all the relevant information to speed up the payment process, such as:

  • Your contact details
  • A clear description of what your charging for and amount charged (typically itemised)
  • Payment terms and information, including due date
  • The correct references (both yours and that of your customer)

Using a standard template is the easiest way to ensure that nothing is missing from your invoice.

2. Chase for payment

It’s common for invoices to have a payment term of ‘X’ days stipulated at the bottom. If it turns out that you haven’t been paid by a client when you were expecting, then you should begin the process of chasing up the invoice as soon as possible once the stated payment period has lapsed.

Send an email reminder or make a phone call to politely remind the client that they need to pay for the work you’ve completed for them, otherwise the situation may escalate.

3. Use a credit hold

One way to prompt a client to pay is to stop doing any further work for them until they have paid their outstanding debt to you. This is sometimes referred to as a credit hold or administrative hold, whereby work on an account stops due to a lack of funding.

In many cases, this will solve the problem as a business might suffer without the services you are providing to them. However, if this doesn’t result in you receiving your payment then you do have other options.

4. Send a letter before action

A letter before action is the last piece of correspondence you’re likely to send the client before legal proceedings begin. This highlights to them that they have until a certain deadline to settle any debts with you, before you begin pursuing legal action against them to claim the money you’re owed. You can decide on the length of time given to a debtor that is a business, but the Court will expect the debtor to have been given a reasonable period of time, which is usually thought to be at least 14 days. In the case of an individual debtor, they must be given at least 30 days to settle the debt or otherwise respond.

FSB members can download a template letter before action from the FSB Legal and Business Hub, or you can instruct debt recovery experts Markel Law via FSB Debt Recovery to send a letter on your behalf for just £30 plus VAT.

If this final notice doesn’t see your client settle any outstanding payments with your business, don’t worry. There are different options you can still pursue to get the money you’re owed.

5. Start legal action

Your last resort is to pursue legal action against your client.

It’s often best to get legal advice from a specialist before taking any action. FSB members can call our 24/7 legal advice line for support from a debt recovery specialist.

You can enlist the help of a debt recovery specialist, like FSB Debt Recovery. This could include:

  • Issuing proceedings for non-payment
  • Serving a statutory demand or petition for bankruptcy
  • Taking enforcement action to recover under a judgement
  • Tools and advice to take steps yourself should you wish

Working together with Markel Law, we’ve helped business owners to recover over £2 million since 2020. There’s also no worry about endless costs to chase the debts, as FSB members can access fixed fees.

Take back control of your cash flow

It’s time to get the money you’re owed thanks to FSB Debt Recovery. Step-by-step guidance on chasing late payments, 24/7 support, free DIY template letters and clear, discounted legal costs.

find out more