Whether approaching a new tax year or simply as an ongoing business hygiene process, there’s never a bad time to review outstanding debts and taking steps to minimise your exposure to them.
This is particularly the case given the financial uncertainty in the market coupled with the ever-growing cost of living crisis and increasing costs right through the supply chain.
Insolvency data shows that insolvency levels are still elevated compared to pre-pandemic levels. Whilst August 2026 saw a 10% year-on-year decrease, the total figure was still over 2,000 UK businesses.
Whether the debt is owed by a company or an individual, there are several legal options available to recover money owed to you. Understanding the debt recovery process can help you act quickly and improve your chances of securing payment.
Initial steps in recovering debt
The first port of call is often to send your debtor a gentle reminder that they have missed their repayments. Set a timeframe of around 7 days for payment to be made. If goodwill can be maintained at this stage, this approach can often help to preserve the business relationship for future opportunities.
If there is no response or payment from the debtor, a more formal request for payment could be sent. It can refer to escalation to formal proceedings or the fact that matters will be passed to your solicitors in the near future.
Disputed or undisputed debt?
If there is still no response or payment, you may be left with little option but to pursue matters more formally.
Much depends on whether the debt has been previously disputed by the debtor in any way. If it has, and the dispute is genuine, then you would need to proceed on the basis that it is a disputed debt. with court proceedings often required. If liability is not disputed, creditors may be able to consider insolvency-related recovery options in addition to court action.
Disputed debts: recovery through court proceedings
For disputed debts, court proceedings would need to be initiated to seek a judgment in respect of the outstanding sum along with interest and legal costs.
Prior to court proceedings, a formal Letter of Claim should be sent demanding payment and explaining the consequences to the debtor if payment is not made.
Obtaining specialist legal advice at this stage to ensure that a compliant letter of claim is sent to your debtor is important.
The aim of initiating court proceedings is to either secure a judgment at the end of the proceedings or to achieve a beneficial settlement prior to a trial. If a judgment is obtained, this might not necessarily result in payment from your debtor and you would then need to take steps to enforce the judgment. This can vary depending on the debtor’s circumstances and the extent of their assets.
Undisputed debts: statutory demand and insolvency proceedings
For undisputed debts, creditors may have more options available.
The approach you take will depend on whether your debt is due from a company or from an individual.
Recovering debt from a company
A statutory demand can be served on a company for debts which exceed £750. This is a formal demand for payment prior to winding-up proceedings and allows a debtor three weeks to make payment.
If payment is not made then a company is deemed unable to pay its debts as they fall due – being one of the specific grounds on which a winding-up order may be made.
As an alternative, a non-statutory demand letter could be sent giving the company just three days to make payment – failing which a winding-up petition could then be presented.
Just because a statutory demand or a non-statutory demand letter has been issued to the debtor does not mean that a winding-up petition must then be presented at court. However, the threat of future winding-up proceedings can often be a useful tool to focus a company’s mind and prioritise their payment rota.
Recovering debt through an individual
Where your debtor is an individual, the financial threshold which must be met before a statutory demand can be served on them is much higher, at £5,000.
As with a company, an unsatisfied statutory demand leads to the assumption that the individual is unable to pay their debts as they fall due and this can be used as a precursor to presenting a bankruptcy petition.
Again, a bankruptcy petition does not have to be presented following a statutory demand and, often, the influence of a statutory demand can lead to repayment or settlement proposals.
Proposed changes to late payments laws
Businesses pursuing outstanding debts should also be aware of the proposed Commercial Payments Bill, which was introduced to Parliament on 19th May 2026 and is currently progressing through the legislative process. At the time of writing, its provisions are not yet in force.
If enacted in its current form, the Bill would introduce a number of significant reforms aimed at tackling late payment practices and improving cash flow for businesses. Proposed measures include:
- Maximum payment terms of 60 days in many business-to-business contracts.
- Mandatory interest on late payments.
- Additional rights for suppliers where payment disputes are raised late or without sufficient information.
- Expanded powers for the Small Business Commissioner to investigate poor payment practices and take enforcement action.
- New measures designed to improve payment practices throughout supply chains.
While these reforms are not yet law, they demonstrate the continuing focus on helping businesses tackle late payment and recover money owed to them more effectively. Businesses should continue to rely on existing debt recovery remedies until any new legislation takes effect.
For a detailed overview of the proposed reforms, read our guide to the Commercial Payments Bill.
What can businesses do to improve debt recovery?
Taking preventative steps can often improve debt recovery outcomes.
Businesses should consider:
- Monitoring aged debt regularly
- Chasing overdue invoices promptly
- Maintaining accurate records and contracts
- Keeping written evidence of agreements and communications
- Acting quickly when payments are missed
- Seeking legal advice before a debtor’s financial position worsens
The earlier action is taken, the greater the likelihood of recovering funds before competing creditors become involved.
Summary
Where a debt is undisputed, creditors may have a range of recovery options available, including court proceedings and insolvency-based remedies such as statutory demands.
However, the most appropriate course of action will depend on factors including:
- Whether the debt is disputed
- The amount outstanding
- Whether the debtor is a company or an individual
- The debtor’s financial position
- The availability of supporting evidence
Prompt action is often critical when recovering debts. The earlier a creditor reviews unpaid debts and considers available recovery options, the greater the likelihood of achieving a positive outcome.
As every debt and debtor is different, obtaining legal advice at an early stage can help identify the most effective strategy and avoid unnecessary delay or expense.
If you are struggling to recover money owed to your business, our debt recovery and insolvency team can advise on your options and help you take appropriate steps to protect your position.
Watch our podcast on debt recovery
FAQs
Yes. Many debts can be recovered without court proceedings through reminder letters, formal demands, negotiation or settlement discussions. Early action often increases the likelihood of securing payment without litigation.
The first step is to establish whether the debt is genuinely disputed. If the customer disputes the amount owed, legal advice should be sought before considering court proceedings or other recovery action.
A statutory demand is a formal request for payment of an undisputed debt. If the debt remains unpaid, it may be used as evidence that the debtor is unable to pay their debts and can form the basis of insolvency proceedings.
If a statutory demand is ignored, the creditor may be able to consider further action, including insolvency proceedings, depending on the circumstances of the case.
In some circumstances, creditors may be entitled to claim interest and recover certain legal costs. Whether this is possible will depend on the contract, the type of debt and the applicable legal rules.
Debt recovery focuses on securing payment of an outstanding debt. Insolvency proceedings are designed to deal with debtors who are unable to pay their debts and can sometimes be used as a method of encouraging payment where a debt is undisputed.
Potentially. A written contract can be helpful, but debts may still be recoverable where there is other evidence of the agreement, such as emails, invoices, purchase orders or correspondence between the parties.
A Letter of Claim is a formal demand for payment sent before court proceedings are issued. It sets out the amount owed, why the debt is due, the action required and the consequences of failing to pay. Sending a compliant Letter of Claim is often an important step before commencing debt recovery proceedings.
A disputed debt is one where the debtor challenges liability for the debt, its value or the circumstances surrounding it. An undisputed debt is one where the debtor does not genuinely dispute the amount owed. The classification is important because different debt recovery options may be available depending on whether a dispute exists.
A statutory demand can generally be served on a company where the debt exceeds £750 and is not genuinely disputed. If the company fails to comply with the demand, this may be evidence that it is unable to pay its debts as they fall due.
A statutory demand can generally be served on an individual where the debt is at least £5,000 and is not genuinely disputed. Failure to respond may allow a creditor to consider bankruptcy proceedings.
A company will typically have 21 days to pay the debt or otherwise address the statutory demand. If the debt remains unpaid, the creditor may consider whether further recovery action is appropriate.
A winding-up petition is a court application seeking an order to place a company into compulsory liquidation. It is commonly used where a company has failed to pay an undisputed debt and is unable to pay its debts as they fall due.
John Whittingslow | Partner
John Whittingslow is a partner at Napthens Solicitors in the commercial litigation and dispute resolution team, based in the firm's Preston office.
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