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How to deal with bad debts and recover outstanding invoices

Payment disputes and considering legal action against a non-paying client can seem daunting. Belinda Naiken-Payne, a barrister from Our General Counsel, sets out some tips for claimants on how to tackle situations when clients will not pay, or where there are trade debts. 

Often if the trade debt is not disputed you may be able to recover a debt easily but there are situations where you may have to contemplate legal action. Depending on the value of the claim, you will first have to choose in which court to start proceedings.

Claim online?

If the value of the claim is less than £10k, you may be able to submit a small claim yourself. The small claims track is a simplified procedural system for dealing with lower value claims. It is generally quicker and cheaper to bring a claim in the Small Claims Court. As an alternative to issuing proceedings in a County Court, small claims for specified sums for a fixed sum under £100,000 can be issued on Money Claim Online. Users can review the progress of their claim online, and defendants can respond online.

You can choose to represent yourself, or have a barrister or solicitor represent you in the Small Claims Court. If both parties have agreed to mediation, the claim will be referred to the Small Claims Mediation service.

If the debt exceeds £750 and is not disputed you may be able to start insolvency proceedings against the debtor. If a Statutory Demand is not paid within 21 days of its receipt, then you can start proceedings to wind-up the debtor’s company. Often, the threat of insolvency can be an incentive to make a business pay up.

In circumstances where the debt claim is disputed, an initial step prior to claiming in Court may be to ask a lawyer to send a formal letter before claiming on your behalf. If the customer has ignored your letters and phone calls, a letter from a lawyer can give them the incentive required for the payment to be made. The fear of legal action can put enough pressure for payments to be effected in a lot of the cases.

You could choose to refer the matter to a debt collection agency to recover the money. These agencies work with you to find ways to resolve your outstanding balances and usually charge a percentage of what you recover as commission.

Before you get a lawyer involved, there are simple steps that you can take to minimise the risk of increasing debts such as invoicing early and chasing payment promptly when it falls due. If more serious action is warranted, contact do a lawyer. Use legal action as a last resort when other means have failed.