Recovering an overdue business debt usually runs in this order: reminders, a phone call, a formal notice of the interest you're owed, a letter before action, then a court claim. Each step costs more than the one before, so it helps to decide in advance how far you'll go for a debt of a given size. A debt collection agency, a winding-up petition or a write-off are the options at the far end.
In this article
The short version
- Recovery usually runs: reminders, a phone call, a formal notice of interest, a letter before action, then a court claim.
- On a business invoice you can claim 8% above base rate (11.75% now) plus £40, £70 or £100 compensation.
- Claims up to £10,000 go on the small claims track, with court fees from £35 to £455.
- A winding-up petition needs a company debt over £750 and costs £352 plus a £2,600 deposit.
- Decide your stopping points in advance and reclaim the VAT on debts you write off.
The steps and what each one costs
Each step costs more than the last, in money, time or goodwill. This is the usual order for a business customer in England and Wales.
| Step | What it costs you | What you need first |
|---|---|---|
| Reminders | Your time | A schedule set when the invoice goes out |
| Phone call | Your time | The name of whoever approves payment |
| Formal notice of interest and compensation | Your time | The interest and fixed sum worked out |
| Letter before action | Your time and postage | The right format for a company or an individual |
| Court claim up to £10,000 | £35 to £455 court fee | An undisputed debt and a customer who can pay |
| Debt collection agency | A share of what's recovered | A debt you're ready to hand over |
| Winding-up petition | £352 court fee plus £2,600 deposit | A company owing more than £750, and no dispute |
Moving to the next step is a commercial decision, and it's easier if you've already decided, say, that debts under £500 go no further than a letter before action.
Reminders, a phone call and a formal notice
The first three steps cost nothing but attention, and they're the easiest to let slip. Reminders tend to work best on a schedule you set when the invoice goes out, getting firmer after the due date. If an invoice is still unpaid a couple of weeks late, a call to the person who approves payments usually tells you more than another email: whether it's stuck in an approval queue, held up by an unanswered query, or simply not affordable this month.
The formal notice is a step many businesses skip. It states the debt, how many days it's overdue, and what the law adds to a late business invoice: interest at 8% above the Bank of England base rate, which is 11.75% a year at the current 3.75%, plus fixed compensation of £40, £70 or £100 depending on the invoice size. You're entitled to both whether or not your terms mention them. Setting them out in writing tends to carry more weight than a fourth reminder.
At six months overdue there's one more fact you can mention. A VAT-registered customer who still hasn't paid by then has to repay HMRC the input VAT they reclaimed on your invoice, and it's often news to whoever reads it.
If you'd rather these steps ran without anyone having to remember them, Adfin chases overdue invoices over email, SMS and WhatsApp on the schedule you set, from your own email domain. Its collection agents can add statutory interest to overdue business invoices, with the payment link updating as it builds, offer an instalment plan or send a statement when a customer goes quiet, all within rules you approve.
Letter before action and a court claim
The letter before action is your last step before court, and the rules depend on who owes you. If it's an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies: a letter with an information sheet, a reply form and a financial statement form enclosed, and 30 days for them to reply. If it's a limited company, the general Practice Direction on Pre-Action Conduct applies, which asks for a clear letter and a reasonable time to respond, normally 14 days in a straightforward case. Skipping it can count against you on costs if the case goes to court.
A claim of up to £10,000 normally goes to the small claims track. The court fee is £35 for a claim up to £300, rising to £455 for a claim between £5,000.01 and £10,000, and you add it to what you're claiming. You generally can't recover what you pay a solicitor on this track, so it suits owners who'll run the claim themselves. If the customer defends the claim, you'll both be asked to join a free mediation call of up to an hour before any hearing is listed.
Before you issue, check the debt is undisputed and the customer can pay. A company's filed accounts cost nothing to check, and a judgment against an empty company won't get you paid.
Agencies, insolvency and when to stop
A debt collection agency chases on your behalf, usually for a percentage of what it recovers, and tends to suit a debt from a customer you don't expect to work with again.
For a company that owes you more than £750 and could pay but won't, a statutory demand gives it 21 days to pay or agree terms. If it does neither, you can petition to wind the company up, for £352 in court fees and a £2,600 deposit. If it succeeds, the company is closed and you're one unsecured creditor among several. For an individual or sole trader, the bankruptcy threshold is £5,000, with a £352 court fee and a £1,500 deposit. Both are serious steps, for undisputed debts only.
Sometimes the right move is to stop. If chasing further would cost more than the debt is worth, or the customer simply can't pay, writing it off closes the file. Six months after the due date, a written-off debt usually lets you reclaim the VAT you paid on it through VAT bad debt relief, and it can reduce your taxable profit too.
Put your stopping points in your credit control policy now, while nobody's annoyed: how big a debt has to be before you escalate, when you hand it over, and when you write it off.
Common questions
What are the steps to recover an overdue invoice? Reminders, a call to the person who approves payment, a formal notice of interest and compensation, a letter before action, then a court claim. An agency, a winding-up petition or a write-off are the options at the far end.
How much does it cost to take an unpaid invoice to court? The court fee is £35 to £455 for claims up to £10,000 and 5% of the claim above that. On the small claims track you generally can't recover your legal costs.
Can I add interest when I chase a late invoice? On a business-to-business invoice, yes: 8% above the Bank of England base rate, currently 11.75% a year, plus £40, £70 or £100 of fixed compensation. The right applies even if your terms don't mention it.
What's the minimum debt for a winding-up petition? The company has to owe you more than £750. Presenting the petition costs £352 in court fees plus a £2,600 deposit.
Should I use a debt collection agency? It can make sense when the debt is undisputed, the relationship is over, and you'd rather give up a share of the debt than spend more time on it.
When should I stop chasing a debt? When the next step would cost more than you expect to recover, or the customer can't pay. At that point a write-off, with the VAT reclaimed, usually leaves you better off.
Sources
- GOV.UK - Late commercial payments: charging interest on commercial debt (accurate as of October 2026) https://www.gov.uk/late-commercial-payments-interest-debt-recovery/charging-interest-commercial-debt
- Ministry of Justice - Pre-Action Protocol for Debt Claims (accurate as of October 2026) https://www.justice.gov.uk/courts/procedure-rules/civil/protocol/pre-action-protocol-for-debt-claims
- GOV.UK - Make a court claim for money: court fees (accurate as of October 2026) https://www.gov.uk/make-court-claim-for-money/court-fees
- GOV.UK - Wind up a company that owes you money (accurate as of October 2026) https://www.gov.uk/wind-up-a-company-that-owes-you-money
- HMRC - Relief from VAT on bad debts (VAT Notice 700/18) (accurate as of October 2026) https://www.gov.uk/guidance/relief-from-vat-on-bad-debts-notice-70018
- Adfin - Credit control (accurate as of October 2026) https://www.adfin.com/credit-control
