How long does a business have to collect a debt?

Chasing debts is rarely an enjoyable activity when running a business, and you can be forgiven for not jumping on every overdue invoice the moment your payment terms have expired.

If an approach of just tolerating late payments sounds familiar, you're not alone. The Department for Business, Energy & Industrial Strategy found that over half of small businesses wait one month or more beyond their agreed terms for an invoice to be paid. With a fifth of SMEs waiting longer than two months!

But when weeks turn into months which then turn into years, you may worry that you've missed your opportunity to take formal action. However, you may be surprised how long you have to pursue a debt before it is legally 'statute barred'.​

Statute Barred Debts.

Being 'statute barred' means that the defined time period you have to use certain legal avenues to pursue a debt has expired. While this doesn't mean that the money is no longer due, or the debt no longer exists, it does restrict your legal options when pursuing a debt. So can be thought of as a legal time limit for invoices and other debts.

The time limits that formal court action must be made in the UK are detailed in the Limitation Act 1980 and court action is usually defined as a debt claim being issued at the county court or money claim online system.

There are different time limits for different areas of law, but when the relevant time limit has passed, this act is able to be used as a defence by the debtor to prevent you obtaining a county court judgment (CCJ) against them.
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How long do you have to claim unpaid invoices?

Most invoices and debts fall under the definition of a 'Simple Contract' in the Limitation Act, meaning you have six years to commence legal action to recover the debt in England and Wales.

If money is owed in relation to a deed (i.e. a mortgage or property) then the limitation period is 12 years.

You will also need to consider any pre-action steps that have to be taken before you issue proceedings such as the Pre-action Protocol for Debt Claims that may require you giving up to 30 days' notice before starting court proceedings.

Once you have been through the court process and successfully obtained a court judgment (CCJ) against the debtor. You will generally then have a further six years from the date of the judgment to enforce it.
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When does the limitation period start for a debt claim?

For simple contracts the Act states that the limitation period will expire six years after the 'cause of action'. A 'cause of action' can be thought of as when a breach of your agreement has occurred.

​For example, this could be when:

• The payment terms of an invoice have passed without a payment being made
• A scheduled payment is missed and becomes overdue
• An agreement or contract has been breached by an event
• The date of the last correspondence with the debtor discussing payment

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How to claim unpaid invoices.

Dealing with a debt that was incurred several years ago may seem like a complex process, but if you have documentary evidence that the amount is due it should not prevent you from pursuing the money owed to your business.

A solicitor will be able to advise you on your legal options to recover a business debt, including sending a letter before action, issuing a claim and potential limitation defences. Also if the debt isn't disputed you may be able to claim late payment interest and compensation which can be significant on long overdue debts.

While six years may seem a long time, the sooner you act the more chance you have of recovering the amount owed and avoiding your debt claim being statute barred.