Running a business comes with many challenges, but few are as frustrating as completing work, providing a service or delivering goods and then not receiving payment.
Unpaid invoices can affect cash flow, disrupt business operations and place unnecessary pressure on relationships with suppliers and employees.
Whether you are a sole trader, a small business owner or managing a larger company, knowing how to recover money owed to your business is essential.
So, what can you legally do when someone refuses to pay?
1. Check Your Contract and Payment Terms
Before taking legal action, it is important to establish the basis of the debt.
Review any relevant contracts, invoices, purchase orders and correspondence between the parties.
Consider whether the payment deadline has passed, whether the goods or services were delivered as agreed and whether the customer has raised any genuine dispute.
A clearly drafted contract can make debt recovery more straightforward by setting out payment deadlines, interest provisions and the consequences of late payment.
Even where there is no formal written contract, you may still have a legal right to recover payment.
2. Send a Formal Payment Reminder
Sometimes, an unpaid invoice results from an administrative oversight rather than a deliberate refusal to pay.
A professional payment reminder may resolve the matter without further action.
Your reminder should identify the outstanding amount, the invoice reference, the original payment deadline and the date by which you expect payment.
Keeping communications clear and professional can help preserve commercial relationships while demonstrating that you are taking the matter seriously.
3. Can You Charge Interest on Late Payments?
In certain business-to-business transactions, creditors may be entitled to claim statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
Where the legislation applies, statutory interest is generally calculated at 8% above the Bank of England base rate.
However, the entitlement depends on the circumstances and the contractual terms agreed between the parties.
Businesses should check whether their contract contains an alternative interest provision and whether the statutory regime applies before adding charges to an outstanding debt.
4. What Is a Letter Before Action?
If informal payment requests are unsuccessful, the next step may be to issue a formal Letter Before Action.
This letter informs the debtor that legal proceedings may follow if payment is not made or the dispute is not resolved.
A properly drafted letter will usually identify the amount claimed, explain the legal basis of the debt and provide a reasonable deadline for a response.
It should also comply with any applicable pre-action protocol or procedural requirements.
A Letter Before Action can sometimes encourage payment without the need for court proceedings.
5. Can You Take Someone to Court for an Unpaid Invoice?
If the debtor continues to refuse payment, you may be able to commence a civil claim.
The appropriate procedure depends on factors including the value of the debt, the parties involved and whether the claim is disputed.
If successful, you may obtain a County Court Judgment requiring the debtor to pay the amount awarded.
However, obtaining judgment does not automatically guarantee payment.
Further enforcement action may be necessary if the debtor does not comply.
6. What Happens If the Debtor Still Refuses to Pay?
Where a court judgment remains unpaid, several enforcement options may be available.
Depending on the circumstances, these may include instructing enforcement agents, applying for a third-party debt order or seeking a charging order against property.
The most appropriate method will depend on the debtor’s financial position and the assets available.
It is important to consider whether enforcement is commercially worthwhile before incurring additional legal costs.
7. What If the Customer Disputes the Invoice?
Not every unpaid invoice represents a straightforward debt.
A customer may allege that the work was defective, the goods were unsuitable or the agreed services were not provided.
In these circumstances, the dispute may involve contractual interpretation, evidence of performance and potential counterclaims.
Seeking legal advice can help establish the strength of your position and determine whether negotiation, mediation or litigation is appropriate.
How Can Penerley Solicitors Help?
At Penerley Solicitors, we understand that unpaid debts can have a significant impact on businesses.
Our commercial dispute resolution team can assist with reviewing contractual obligations, preparing formal demands, negotiating settlements and pursuing appropriate legal remedies.
Whether you are seeking to recover an outstanding invoice or defending a disputed payment claim, we can help you understand your options.
Contact Penerley Solicitors today to discuss your business debt recovery concerns.
