Recovery is a series of steps, each with a cost and a point at which it stops being worth taking. Here's the order they come in, what each one costs you, and the decision to make before you move to the next. The discipline that helps is deciding in advance where you'll stop, because otherwise you'll end up deciding it while you're annoyed.
The short version
- Each step costs you more than the last, and taking it is a commercial decision, not a moral one.
- Statutory interest and the fixed sum apply from the day after the due date, whether or not you mention them.
- The letter before action rules differ depending on whether your debtor is an individual or a company.
- A claim up to £10,000 goes on the small claims track, where you generally can't recover your legal costs.
- A winding-up petition needs a debt over £750 and a £2,600 deposit, so it's a serious step and not a strong reminder.
The steps, and what each costs
| Step | Typical cost | What it needs |
|---|---|---|
| Reminders | Time only | A schedule set when the invoice went out |
| Phone call to a named person | Time only | Knowing who approves payment |
| Formal notice | Time only | The interest and fixed sum calculated |
| Letter before action | Time and postage | The right protocol for the debtor type |
| Court claim to £10,000 | £35 to £455 court fee | A complete file and a solvent defendant |
| Enforcement | Further fees | A judgment and something to enforce against |
| Debt collection agency | A share of what is recovered | A debt you have decided to hand over |
| Winding-up petition | £352 court fee and £2,600 deposit | A debt over £750 and a company that can pay |
Reminders and a phone call
The first steps cost you nothing but attention, and they resolve most debts. What makes them work is that they happen on a schedule you set when the invoice went out, not when somebody happens to remember.
Two things are worth checking before you treat a debt as a refusal. Did your invoice reach a person who can approve it, and was paying it straightforward? A surprising share of overdue invoices are sitting with somebody who can't authorise them, and that's a routing problem, not a dispute.
A formal notice with the interest position
Most businesses skip this step, and it's the cheapest one with real weight. Your formal notice states the debt, the days outstanding, the statutory interest rate and the fixed sum, and gives a date.
On a business debt your entitlement is automatic: 8% over the base rate fixed for the half-year, so 11.75% for debts that started running interest between 1 July and 31 December 2026, plus £40, £70 or £100 by debt size. Stating the position tends to carry more weight than adding a few pounds to an earlier reminder.
A second factual point becomes available at six months, and it lands on your customer, not on you. Where a VAT-registered customer hasn't paid within six months of the relevant date, HMRC requires them to repay the input tax they claimed on your invoice, under VAT Notice 700/18. You aren't required to tell them, so it's often genuinely new information to them.
Letter before action
This is your final step before a claim, and the rules depend on who owes you the money. Where your debtor is an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies: a Letter of Claim with an information sheet, reply form and financial statement, and 30 days to reply. Where your debtor is a limited company, the Practice Direction on Pre-Action Conduct applies instead, with a letter setting out concise details and a reasonable time to respond, and that is 14 days in a straightforward case.
Either way the court expects you to have taken the step, and takes non-compliance into account when managing the case.
A court claim
A claim for not more than £10,000 is normally dealt with on the small claims track under CPR 26.9(4). The issue fee runs from £35 for a claim up to £300 to £455 for a claim between £5,000.01 and £10,000, and 5% of the claim above £10,000.
The rule that decides whether it's worth doing is CPR 27.14: on the small claims track the court can award fixed issue costs, court fees, limited travel and witness expenses and capped expert fees, but not ordinary legal representation costs. If you instruct a solicitor for a small claim, you're paying for them yourself whatever the outcome.
Two checks are worth doing before you issue. Is the debt genuinely undisputed, and can the defendant actually pay? Companies House filings are free to look at, and a judgment against an empty company won't get you paid.
Enforcement
Getting judgment isn't the same as getting paid. Once you've got it, the debt carries interest at 8% a year under the Judgment Debts (Rate of Interest) Order 1993, and collecting it is a separate process with its own fees. This is the step where your earlier check on whether the defendant has assets pays for itself.
A debt collection agency
An agency is worth considering where the debt is real, the relationship is over, and you'd rather have a share of it than spend your own time on it. The commercial terms vary and are usually a percentage of what they recover.
One accounting consequence is worth knowing before you assign a debt: VAT bad debt relief requires that the debt "must not have been paid, sold or factored under a valid legal assignment", so selling a debt closes off your VAT reclaim.
Statutory demands and winding-up
For a company debt over £750, you can serve a written demand and, if it isn't paid within three weeks, that is evidence the company is unable to pay its debts, under section 123 of the Insolvency Act 1986. For an individual, section 267 sets the bankruptcy level at £5,000.
The thresholds are low but the costs aren't. Winding up a company that owes you money means £352 in court fees and a £2,600 petition deposit. Making someone bankrupt means £352 in court costs and a £1,500 deposit.
The deposit is the number to focus on. A petition isn't a stronger reminder, it's a decision to spend thousands on a process that may end with the company liquidated and you as one unsecured creditor among several.
Where to stop
This is much easier to settle in the quiet than in the moment, so set your stopping point before you need it and write it into your credit control policy: how large a debt has to be before you escalate, when you hand it over, and when you write it off.
Most debts don't travel far down this list. Among customer-initiated payments on Adfin that do arrive late, the median delay is 8 days, and 27.3% are no more than three days late (Adfin platform data). And the pattern that removes most of the need for any of it comes earlier than your first step: invoices set to collect automatically are paid 98.0% of the time with 0.9% going overdue, against 90.8% paid and 5.3% overdue when collected on demand (Adfin platform data, requests created in the seven months to the end of January 2026). The automatic group usually has a direct debit mandate behind it.
Common questions
What are the steps to recover an overdue invoice? Reminders, a call to a named person, a formal notice stating the interest position, a letter before action, then a court claim and enforcement. A debt collection agency or an insolvency petition are alternatives at the far end.
How much does it cost to take someone to court over an invoice? The issue fee is £35 to £455 for claims up to £10,000, and 5% of the claim above that. Legal costs are generally not recoverable on the small claims track.
What is the minimum debt for a winding-up petition? £750 under section 123 of the Insolvency Act 1986. The practical constraint is the cost: £352 in court fees and a £2,600 deposit.
Should I use a debt collection agency? It can make sense where the relationship is over and you would rather have a share of the debt than spend the time. Note that selling or assigning the debt closes off VAT bad debt relief.
When should I stop chasing? When the cost of the next step exceeds what you expect to recover, or when the customer has no ability to pay. Set that threshold in advance and you won't end up setting it in a moment of frustration.
Does charging interest help? Stating the entitlement in a formal notice tends to carry more weight than adding small amounts to reminders. The entitlement applies automatically on a business debt whether or not your contract mentions it.
Sources
- legislation.gov.uk — Insolvency Act 1986, section 123 (accurate as of August 2026)
- legislation.gov.uk — Insolvency Act 1986, section 267 (accurate as of August 2026)
- legislation.gov.uk — Judgment Debts (Rate of Interest) Order 1993 (accurate as of August 2026)
- Ministry of Justice — Civil Procedure Rules, Part 26 (accurate as of August 2026)
- GOV.UK — apply to bankrupt someone (accurate as of August 2026)
- GOV.UK — claim debt recovery costs on an unpaid invoice (accurate as of August 2026)
- GOV.UK — make a court claim for money, court fees (accurate as of August 2026)
- GOV.UK — relief from VAT on bad debts, Notice 700/18 (accurate as of August 2026)
- GOV.UK — wind up a company that owes you money (accurate as of August 2026)
This article explains the steps for recovering an overdue business debt and is not legal advice. Court fees, deposits and thresholds change, so check the current figures before relying on them. Last updated August 2026.
