When a business client refuses to pay an invoice, the first step is to establish whether the debt is genuinely due and why payment is being withheld.
Check the contract, payment terms, invoice, evidence of delivery or performance, and whether the client has raised any complaint, set-off or counterclaim. If the debt is properly due, you can then decide whether to pursue payment formally, negotiate, mediate or issue proceedings.
Key Takeaways
Confirm the correct debtor and that the invoice is legally due.
Distinguish between late payment and a genuine contractual dispute.
Check whether statutory interest and recovery costs apply.
Follow the correct pre-action process before issuing proceedings.
Consider whether the debtor can actually pay before spending heavily on recovery.
Start With the Contract and Evidence
Before escalating, confirm:
who contracted with you;
what was agreed;
when payment became due;
whether the work or goods were properly supplied; and
whether the client has raised a genuine dispute.
This matters particularly where several companies are involved. The company that instructed the work may not necessarily be the legal entity responsible for payment.
If the client alleges defective work, delay, overcharging or breach of contract, the matter may be a wider commercial dispute rather than simple debt collection.
Escalate the Invoice Properly
Start with a clear written reminder stating the amount due, the invoice date, the payment deadline and when you expect payment or a substantive response.
If payment is still not made, a formal letter before claim may be appropriate.
The correct pre-action procedure depends partly on who owes the debt. The specific Pre-Action Protocol for Debt Claims generally applies where a business is pursuing an individual, including a sole trader. Different rules normally apply when pursuing an incorporated business.
Can You Charge Interest?
For qualifying business-to-business debts, statutory interest may be available under the Late Payment of Commercial Debts regime.
The statutory rate is generally:
8 percentage points above the Bank of England base rate.
Fixed recovery compensation may also be available:
£40 for debts below £1,000;
£70 for debts between £1,000 and £9,999.99; and
£100 for debts of £10,000 or more.
Always check the contract first, as contractual payment and interest provisions can affect the position.
Should You Negotiate or Mediate?
Court proceedings are not always the best commercial answer.
Consider the strength of the claim, amount involved, litigation costs, management time, client relationship and the debtor’s ability to pay.
Where liability is genuinely disputed, negotiation or mediation may produce a faster and more commercially sensible outcome.
The key question is not simply:
“Can we win?”
It is:
“Which route is most likely to produce the best commercial result?”
What If the Client Still Refuses to Pay?
Court proceedings may ultimately be necessary.
However, obtaining judgment does not guarantee payment. If the debtor does not pay voluntarily, further enforcement action may be required.
Before issuing proceedings, consider whether the debtor has sufficient assets or financial capacity to satisfy a judgment.
A strong legal claim against an insolvent company may still have limited commercial value.
Do Not Wait Too Long
Many claims based on a simple contract in England and Wales are subject to a six-year limitation period from the date the cause of action accrued.
The precise calculation can depend on the facts, so older debts should be reviewed early.
Before You Proceed, Check…
Is the correct legal entity being pursued?
Is the amount properly due?
Can you prove performance or delivery?
Has the client raised a genuine defence?
Do interest or recovery costs apply?
Which pre-action procedure applies?
Can the debtor realistically pay?
Would settlement or mediation make more commercial sense?
Common Mistakes Businesses Make
Pursuing the wrong company.
Treating a disputed invoice as ordinary debt collection.
Threatening proceedings before checking the evidence.
Using the wrong pre-action process.
Continuing to extend credit despite repeated late payment.
Focusing on obtaining judgment without considering enforcement.
FAQs
Can I charge interest on an unpaid business invoice?
Potentially. Qualifying commercial debts may attract statutory interest, but the contract should be checked first.
Do I need to send a letter before claim?
In most cases, parties are expected to follow the relevant pre-action framework before issuing proceedings.
What if the client disputes the quality of my work?
You may be dealing with a contractual dispute rather than straightforward debt recovery. The allegations and supporting evidence should be assessed before escalation.
Can I stop providing services?
Possibly, but only if the contract and circumstances allow it. Suspending work without a proper basis can create additional liability.
How long do I have to recover an unpaid invoice?
Many simple contract claims in England and Wales are subject to a six-year limitation period, although the precise position can vary.
When to Get Support
Support may be useful where liability is disputed, the amount is significant, the debtor is overseas or the correct recovery strategy is unclear.
Sterling Legal Solutions supports businesses with non-reserved legal, business advisory and ADR matters, including the early assessment and commercial resolution of business disputes.
Where formal conduct of litigation or another reserved legal activity is required, the appropriate authorised professional should be instructed.
Disclaimer
This article is provided for general information only and does not constitute legal, tax, financial, regulatory, investment or other professional advice. Specific advice should be obtained before relying on any particular course of action.
Sources
Late Payment of Commercial Debts (Interest) Act 1998
GOV.UK — Late commercial payments: charging interest and debt recovery
Civil Procedure Rules — Practice Direction: Pre-Action Conduct and Protocols
Civil Procedure Rules — Pre-Action Protocol for Debt Claims
Limitation Act 1980, section 5