Wouldn't all companies love it if their customers paid invoices on time? You wouldn't need to spend time chasing debts and you could concentrate on actually running your business. However debtors will most likely be ever present.

Businesses can invoice clients early, wait patiently for payment, send chase emails and be optimistic that payment will someday finally land at the bank.

​But sometimes those polite little reminders, sending copy invoices and monthly statements are just not enough to deal with those customers who are adamant they are not paying.
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​​So what can you do to ensure your business is paid the money it is owed? How do you collect debts from customers?

​Choosing how and when you need to take formal action can be difficult and there are a few informal options at your disposal before starting legal action. After all, the last thing you want to do is spend time and money going to court for every invoice that is overdue by a few days.

But when you've exhausted the chasing letters and phone calls, we wanted to share our experiences and tips on how to collect debt from a customer, starting with establishing your legal position on the debt.
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While the vast majority of business debts won't require court action, it is important to establish your legal position and understand how to collect a debt legally.

​​In order to take a debt claim to court, you need to have some kind of evidence that the debt amount you wish to claim is due. In most cases a copy of your invoice, bill or order will suffice, however generally you should have evidence of:
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• the total amount that was billed and is now overdue for payment from your customer (i.e. you gave them a bill or invoice)
• proof that goods were delivered or services provided (i.e. delivery was made or the job was complete)
• previous informal communication with the customer making them aware of the debt (i.e. email or text messages chasing payment)
• formal advanced notification to the debtor informing that you intend to take legal action (i.e. a Letter Before Action or Letter of Claim)

With the above steps and evidence in place, you should be in a good position to start legal proceedings against the debtor.

However if the customer disputes the money is owed, for example because they believe the goods were faulty, you may need to take steps to investigate and resolve the business dispute before proceeding with formal debt action.
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Informal actions such as sending overdue notices, emailing the debtor's accounts team and speaking directly about payment should all be attempted yourself before you begin seeking assistance with recovering the debt.

​But once you do decide to go down a more formal route to secure a payment you have a few options:
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​Option 1 - Submit a debt claim yourself 
To make a court claim on your own you can use the HMCTS Money Claim Online service. It offers a process to recover the money your business is owed by walking you through the submission of an online claim and paying a court fee.

You need to be aware that these are court proceedings and so you should familiarise yourself with the 'pre action' rules along with what happens should you win your claim and receive a judgment. Ensure you read the associated Money Claim Online User Guide thoroughly before starting the claim process.
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Option 2 - Hire a debt collector
When you hire a debt collection agency they will start chasing the debt and in some scenarios begin the legal process to recover it through the courts. You should bear in mind that debt collection agencies don't have any special legal powers beyond what you can do yourself. Generally a debt collection agent will also take a proportion of any debt that they are successful in collecting to cover their fees.

Option 3 - Instruct Debt Recovery Solicitors
A Solicitor should provide some general advice on the process and your prospects along with a fixed fee of what they will charge. If their fees are more than the money you are seeking from your customer, then you'll be better going with another route. However experienced debt recovery solicitors should have a fee structure which complements the amount you are wishing to recover and the complexity of the issue (i.e. it will be more complicated if the debtor defends the claim or disputes the debt being owed).

In the majority of debt recovery claims, the initial solicitor's 'Letter Before Action' often does the trick and the customer will opt to pay their bill rather than face court proceedings from a law firm.

If court action is needed a solicitor can explain the risks and advise on items such as recovering court fees and any statutory late payment charge that can be made. For example, interest may be able to claimed on top of the debt (usually 8% above base rate) via the Late Payment of Commercial Debts Act.​​
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​​You may feel bad 'hounding' a customer about paying their debt or even getting a solicitor involved, but you shouldn't. You did your job and it is not your fault they have failed to pay you in a timely manner.

Being understanding to your customers while knowing your legal rights is what all responsible businesses should aim for.

With any monetary transaction like a loan to a friend, invoice from a business, or a refund from a tradesperson, there will always be a chance that the other party will fail to pay you.

Just getting back what is owed to you can be difficult enough, but if you then also lose touch with the debtor, the complexity of your problems will increase significantly.

When a business owes you money it's generally a straightforward matter to track them down, as when a business is still trading their contact details can be found online or via their advertising. But for debts owed by a person it can be a much more difficult task to trace an individual.

Regardless of having the debtor's mobile number, email address and social media details, the most important information you will need when considering legal action is their address.​

The first stage in taking formal debt recovery legal action is sending a Letter of Claim (also known as a Letter Before Action) to the debtor.

The purpose of this letter is to outline the exact amount that is owed, the reason you believe the debt is due, provide a reasonable timeframe for payment to be made in full, and in the event payment is not received in this timeframe, warn that court proceedings may be started without further notice.

The Letter of Claim should be posted to the debtor at their current address. While a copy can also be sent via email it must be sent in the post and be clearly dated. Sending this letter is an important 'pre-action' step and is required to comply with the various pre-court action protocols.

Should the letter not result in payment the next stage is issuing court proceedings. Again, this will require the debtor's current address for the court to successfully serve the Claim Form and for you to start any subsequent enforcement action.

Therefore, finding the current address of the debtor is critical before considering legal proceedings.
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Businesses are generally easier to locate an address for, as most businesses want to be found by their potential customers. Their trading address will usually be on their website, used in their advertisements or documented in any agreements or terms and conditions you may have been given.

​Failing these checks, the next places to try to locate an address are on the various business listings that are available online:

• Companies House – All UK based Limited companies will be registered on the gov.uk Companies House website which will provide their registered and correspondence addresses.
• Online Directories – Local businesses may be featured on popular online directories such as Google Maps, Facebook or Yell.
• Trade Organisations – If the business advertises that they are a member of a trade association, then their details should be recorded on the relevant trade body website. For example, plumbers and heating engineers may be on the Gas Safe Register.
• Credit Checking – Many credit score companies that provide credit reports on businesses will also supply their current trading address. Obtaining a financial report will also be very helpful in confirming that the business has the assets available to pay your debt.

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​Individuals can be much more difficult to locate an address for as there will be significantly less information about them online or in the public domain.

A first step is to ask any friends or business associates that you may have in common if they know the debtor's current address. Note that while you may know the workplace of the individual, legal correspondence for a debt owed by them personally must be sent to their residential address and not to their employer.

There are then some free and low cost directories available online which may help trace an individual such as the BT Phonebook and 192.com. However, the results provided by these directories may be limited and outdated so it is not recommended that these are solely relied on.

The most reliable method of tracing an individual's address is to instruct a professional tracing agent. These can be found online and will offer various tracing packages depending on the depth and timeframe required for the search. Also, many tracing agents offer a no trace no fee service which can be helpful in the event an individual cannot currently be located.
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If you've tried all of the above and still can't locate a business or residential address, your options will now be limited.

However it is worth bearing in mind that you generally have six years to start court proceedings on an outstanding debt. So there is nothing stopping you repeating the above searches every few months to see if the debtor resurfaces.

Being owed money but having no address for the debtor adds a further level of complication to taking legal action. However, with a little DIY investigation work and perhaps paying a small fee for some professional tracing assistance, most debtors can be found.

​Once you have located the debtor you then need to be confident that they have the assets or funds available to repay the debt. If you were struggling to locate a business because it has closed, or an individual has moved due to their previous home being repossessed, you will need to think carefully about your chances of recovering the debt before incurring the cost of pursuing them through the courts.
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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'.​

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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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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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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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.