Debt Recovery

Clear communication is often all it takes to settle an invoice, which is why late payment letters are so important to the debt recovery process. You should have a clear policy in place for overdue payments.  

• Follow up non-payments with a friendly letter, email or phone call 
• Remind your clients about the payment terms in your contract 
• Apply interest to encourage prompt payments 
• Advise your client that you’ll be pausing all future work until invoices are paid 

Read our article on How your small business can deal with late payments >

A letter before action warns the late payer that if payment is not made, you’ll be willing to take legal action and the letter is the first step in the legal process. It’s sent when you’ve already taken steps to try and recover the debt, like frequent phone calls, adding interest, offering payment plans and sending late payment demands.  

Unlike a letter before action (LBA), which warns of imminent legal action if no payment is made, a late payment demand (LPD) lets you claim interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 in addition to the principal sum.  
 
If an LPD has been sent and the debtor fails to pay, an LBA should then be sent, giving the debtor a final deadline in which to make payment and providing certain other information as to the debt that the Court expects to be provided before formal action is taken.  

FSB Debt Recovery provides you with a free, downloadable Pre-Action Protocol compliant letter before action (LBA), as well as a late payment demand letter (LPD), so you can choose what’s right for your circumstances. 

Many smaller firms add in terms of interest on overdue invoices into their contracts as standard to deter late payments. In the absence of such a clause, statute provides for a default rate of interest to be added, which depends on whether the debtor is a company or an individual.  

Ultimately, your decision will come down to the relationship you have with the business that owes you money. A late payment interest calculator can help you to work out how much you can charge. 

Debt claims must be brought within six years of the sums falling due or, if it occurred later, the debtor’s last acknowledgment of the debt. Otherwise, they will be statute-barred and become unenforceable. At that point, they should be written off as a bad debt.