Debt Recovery Process: A Guide for UK Creditors

An unpaid invoice may seem straightforward. After all, if somebody owes you money, surely you can simply demand payment and recover what is owed? 

Unfortunately, debt recovery is rarely that simple. Debtors may dispute the debt, ignore payment requests or experience financial difficulties that prevent them from paying on time. This is where our debt recovery service can assist. 

What is debt recovery? 

Debt recovery is the process of recovering outstanding monies owed to an individual or business. While many debts can be resolved through informal discussions and payment requests, others may require formal legal action.  

Before commencing court proceedings, creditors should ensure that the appropriate pre-action steps have been taken, as following the correct procedure can improve the prospects of recovery and help avoid unnecessary costs and delays. 

This article will walk you through the actions you can take, as a creditor, to recover any debts owed to you. 

Try to resolve it directly first  

A customer owes you money. The invoice is overdue, and payment has still not been made despite demands for payment having been made. 

Your first reaction may be to threaten legal action. However, the first step should usually be to contact the debtor directly. 

A telephone call or informal conversation can often establish the reason for non-payment. In some cases, the issue is a simple oversight. In other cases, there may be a genuine reason why payment has not been made. 

Taking an informal approach initially can encourage early payment and help preserve commercial relationships. However, where the debtor remains unresponsive or refuses to pay, a more formal approach may be required.  

Send a Letter Before Action 

The debtor has ignored your calls and payment requests. What next? 

If informal attempts to recover the debt have been unsuccessful, the next step is usually to send a Letter Before Action (LBA). This is a formal letter that gives the debtor a final opportunity to pay before court proceedings are commenced. 

The letter should clearly set out the amount owed, how the debt arose, any interest or charges being claimed and the action required from the debtor. It should also explain that legal proceedings may be issued if payment is not received. 

For most debt claims involving individuals, creditors must comply with the Pre-Action Protocol for Debt Claims, which forms part of the Civil Procedure Rules (CPR). The protocol is designed to encourage communication and settlement before litigation. Debtors are generally given 30 days to respond to the letter. 

Many debts are resolved at this stage without the need for court action. However, where no response is received, or a settlement cannot be reached, creditors may then consider issuing formal court proceedings. Failure to comply with the relevant pre-action requirements can result in delays and adverse costs consequences. 

Our team can prepare and send a Letter Before Action on your behalf, making sure it complies with the Pre-Action Protocol and puts you in the strongest position if proceedings follow. Call us on 0151 958 0057 to discuss your debt.

Making a court claim 

If the Letter Before Action has been ignored, then at this stage, court proceedings may become necessary. 

If the debtor still refuses to pay, the next step may be to issue a claim through the County Court. This is the formal process of asking the court to order the debtor to pay the outstanding debt. 

Once the claim has been served, the debtor will usually have 14 days to respond. If they accept the debt, the matter can often be resolved quickly. However, if the claim is disputed, the court will determine how the case should proceed. If the debtor fails to respond, the creditor can apply for a County Court Judgment (CCJ) by default. 

Disputed claims are allocated to different court tracks depending on their value and complexity. Most claims under £10,000 are dealt with on the Small Claims Track. Claims between £10,000 and £25,000 are usually allocated to the Fast Track, while higher-value or more complex disputes are dealt with on the Multi-Track. 

A court fee is payable when a claim is issued. If the claim is successful, the fee can usually be added to the amount claimed and recovered from the debtor along with other legal costs and expenses incurred. However, obtaining a judgment is only part of the process. If the debtor still fails to pay, creditors must consider how best to enforce the debt. 

If you are considering issuing a claim, speak to our commercial litigation team first. We can advise on the right court track, the likely costs and how to recover the debt as efficiently as possible.

Statutory demands and insolvency proceedings 

Is a court claim the only option? 

Not necessarily. Where a debt is clear, undisputed and remains unpaid, a statutory demand can be an effective alternative to court proceedings. 

A statutory demand is a formal demand for payment made under the Insolvency Act 1986. Although it is not a court document, it is a serious legal step that is often used before bankruptcy proceedings against an individual or winding-up proceedings against a company. It is generally only suitable where the debt is for a fixed amount, is due and payable, and is not genuinely disputed. 

The demand must set out details of the debt, the amount owed and the consequences of non-payment. Once served, the debtor will usually have 21 days to pay, reach an agreement with the creditor or challenge the demand. If they fail to do so, the creditor may be able to commence insolvency or bankruptcy proceedings. 

The threat of bankruptcy or compulsory liquidation is often enough to encourage payment without lengthy litigation. However, statutory demands should be used with caution. They are not intended for disputed debts, and the court may prevent further action where there is a genuine dispute or a defect in the demand. 

For this reason, statutory demands are usually most effective where previous recovery attempts have failed, and the creditor is confident the debt is clear, due and undisputed.  

Enforcing a judgment 

The court has ruled in your favour. How do you recover the money? 

Obtaining a County Court Judgment (CCJ) is an important step in the debt recovery process. However, a judgment does not guarantee payment; it is the mechanism by which you can progress to legitimately enforce against the debtor.  

One option is to instruct County Court bailiffs or High Court Enforcement Officers (HCEOs). They can attend the debtor’s premises and take control of certain goods, which may be sold to satisfy the debt. This can be effective where the debtor owns valuable assets, although recovery may be limited if few assets are available. 

If the debtor has money held in a bank account, a Third-Party Debt Order may be appropriate. This allows the court to freeze funds held by a third party, usually a bank, and direct payment to the creditor. While this can result in a swift recovery, it is most effective where the creditor knows that funds are available. 

Where the debtor is employed, an Attachment of Earnings Order may be used. This requires the employer to deduct regular payments from the debtor’s wages and pay them directly to the creditor. The advantage is a steady stream of payments, although it cannot be used against companies or self-employed individuals. 

Creditors may also consider a Charging Order if the debtor owns property. This secures the debt against the property and can provide valuable protection. However, it does not guarantee immediate payment, and further action may be required if the creditor wishes to force a sale. 

The most appropriate enforcement method will depend on the debtor’s circumstances, the value of the debt and the assets available. Taking early legal advice can help creditors choose the most effective route and maximise the prospects of recovery.