What legal action can I take to recover debt?

Blogs 27 Jul 2020

If you’ve lost count of how many reminder letters you’ve sent and phone calls you’ve made to chase late payments, learn more about the legal action you can take to recover debts.

There is undoubtedly a balance to be struck by businesses between maintaining a good relationship with your clients (ensuring long-term income) and receiving prompt payment for the goods and services provided (preserving short-term cash flow). Whilst payment plans and deferred payments will be the right solution for some businesses, for others legal action will be necessary.

Smaller businesses are all too familiar with the late payments and missed invoices, which is why we’ve launched a new FSB Debt Recovery service, in association with Markel Law.

We’re here to explain what legal action you can take to recover debt, and give you the confidence to take control of your debt.

First steps

Where an invoice is outstanding, the first step you can take is to send a late payment reminder letter to the client, reminding them that payment is due, and requesting that they pay as soon as possible. This can be followed by a more forceful late payment demand letter, requesting payment within a set time period (for example, seven days) and intimating a claim for interest.

If these letters do not prompt a response, you should send formal letter before action to the client notifying them of an intention to issue Court proceedings to recover the outstanding sum. This will maximise your prospects of recovering your legal costs at the conclusion of the matter. There are stricter rules governing the amount of information that should be provided to individual debtors (including sole traders), as well as the period of time before issuing a claim.

FSB Debt Recovery offers a free template letter before action, but if you’re unsure you can instruct a legal expert from Markel Law to write this for you for a discounted fee.

What if there’s still no response?

If the debt remains unpaid, there are then two distinct options: Court action or insolvency proceedings. Careful thought should be given before any ‘nuclear’ option is pursued though. For example:

  • a cost-benefit analysis
  • the chance of ultimately securing payments
  • the impact on the commercial relationship with the client
  • the costs and management time necessary to take matters further

Court action

A claim can be issued at Court against either commercial or individual debtors. A claim form must be filled out, including particulars of claim with details of the debt. These documents are then filed at Court along with an issue fee.

Once a claim has been issued, the Court will serve it on the debtor, who will then be required to acknowledge the claim within 14 days and to respond fully within 28 days. Unless the debtor admits the whole of the claim, a defence must be filed, alongside which the debtor can make a counterclaim. The Court will then provide directions through to trial, which will include the claim being allocated to the appropriate track.

It’s important to note that if a claim is for less than £10,000, it’s likely to be allocated to the small claims track, where only court fees and fixed costs are likely to be recoverable from the debtor even if the claim succeeds.

Insolvency proceedings

Alternatively, if a commercial client is unable to pay a debt of more than £750, you can petition the court for a winding-up order. The threat of insolvency often prompts debtors to pay immediately, but if the company goes into liquidation, debtors may be entitled to a dividend.

However, the government has imposed restrictions on winding-up petitions at present – prior statutory demands are not permitted to be used until at least 30 September 2020, and petitioners presenting on other grounds must prove that the company has not been affected by COVID-19, or would have been unable to pay its debts anyway.

For individual debtors, if the debt owed is more than £5,000, you can present a bankruptcy petition to the Court. If a bankruptcy order is made, the debtor’s assets can be taken and sold to pay their debts.


If the debtor does not respond to a Court claim and judgment is entered against them, or where a debtor does not make payment after a judgment has been obtained, a business may take enforcement action. It’s important to note that this will involve further costs and does not guarantee a recovery.

Options include:

  • execution against goods owned by the judgment debtor
  • an attachment of earnings order
  • a charging order over a property owned by the debtor

We’re here to help

Almost 2,000 small businesses used our new FSB Debt Recovery service to help them chase late payments in June – and for 99% of members, it didn’t cost them a penny.

With an easy step-by-step process, as well as downloadable guides, letters and expert advice to support you along the way, we’ve made the process simple.

Where litigation does prove necessary, we’ve partnered with Markel Law to provide fixed fee legal advice and support on the full range of debt recovery actions from issuing a claim through to enforcement.


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.