How do I recover an unpaid invoice?

How to recover unpaid invoices in England and Wales: A legal guide for businesses

Unpaid invoices can create serious cash flow issues for businesses. Fortunately, there are several legal avenues available in England and Wales to help recover outstanding debts – ranging from informal negotiations to formal court proceedings. The goal is always to resolve the matter efficiently, cost proportionately, and ideally without the need for litigation, which can be costly and time consuming.

Start with informal negotiation

The first step is often the simplest: reach out to the debtor directly. Many disputes can be resolved through open communication and a mutually agreed payment plan. This approach is cost-effective and preserves business relationships.

Issue a letter before claim

If informal efforts fail, the next step is to send a Letter Before Claim in accordance with the relevant pre-action protocol of the Civil Procedure Rules 1998. This formal notice acts as a final warning before legal action and gives the debtor a chance to settle. It should include:

• Details of the unpaid invoice
• The total amount owed
• A deadline for payment
• A statement reserving the right to claim interest

You can also suggest mediation or other forms of dispute resolution to avoid court proceedings; which the Court will expect parties to have attempted in an effort to resolve their dispute without court proceedings becoming necessary.

Where the claim is against a company, partnership, or someone acting as a sole trader, the relevant pre-action protocol is the Practice Direction – Pre-Action Conduct and Protocols. If the debtor is an individual, then the Debt Protocol must be used.

Consider a “without prejudice” offer

To encourage settlement, you may wish to offer to accept a reduced amount. This tactic can save both parties time and legal costs, and can be beneficial to a creditor if they can recover some money without incurring costs in court proceedings and legal fees.

Taking legal action

If the debt remains unpaid, then it may become necessary to proceed with a money claim through the courts. Before doing so, ensure you have followed the relevant pre-action protocol as outlined in the Civil Procedure Rules 1998. Legal action should be proportionate to the value of the claim.

Court fees apply, and the process can become complex, especially if the debtor disputes the claim or the quality of goods/services. If no defence is filed, you can request a Default Judgment to enforce payment.

Claiming interest on late payments

Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses and public sector bodies can claim statutory interest on qualifying commercial debts (i.e., debts owed from one commercial entity to another, rather than a debt owed by an individual). This includes:

• Interest at 8% above the Bank of England base rate
• A fixed compensation fee:
  • £40 for debts under £1,000
  • £70 for debts between £1,000 and £9,999.99
  • £100 for debts over £10,000
• Reasonable recovery costs beyond the fixed fee

If the Act doesn’t apply (e.g., in non-commercial cases), interest may be claimed under section 69 of the County Courts Act 1984 or section 35A of the Senior Courts Act 1981 – both allow for up to 8% simple interest annually. Alternatively, contractual interest may apply if specified in the agreement.

Final thoughts

Choosing the right path to recover unpaid invoices depends on the nature of the debt, the terms of your contract, and the legal framework. Whether you are negotiating informally or preparing for court, it’s essential to follow proper procedures and weigh the costs against the potential recovery.

How can Ellis Jones help you?

Ellis Jones have a specialised Dispute Resolution  team available to  assist with debt recovery matters. If you are a business that seeks to recover a debt owed to you, we would be happy to discuss your case and assist where proportionate. Should you wish to discuss this further, please do not hesitate to contact our specialist Dispute Resolution team on 01202 525333 or emma.bowditch@ellisjones.co.uk.