When a Customer Will Not Pay: Recovering a B2B Debt in the UK

Ninety days late, no reply, and a growing suspicion that chasing it costs more than it is worth. The order you do things in decides whether you get paid.

Every founder-led business eventually has one: an invoice that is ninety days old, a customer who has stopped replying, and a growing suspicion that chasing it is costing more than the money is worth.

The instinct is to reach for a solicitor's letter. Sometimes that is right. More often it is the third or fourth thing you should do, and doing it first weakens the position you will need later.

Start with recoverability, not with the argument

Before anything is written, there is one question worth answering honestly: if you win, will you actually get paid?

A judgment against a company with no assets is an expensive piece of paper. Fifteen minutes on Companies House tells you a great deal — whether accounts are overdue, whether a charge has been registered recently, whether the company has changed its name or its registered office, whether other creditors are circling. A business that has just granted a debenture to a lender is telling you something about where you would sit in the queue.

That is not a reason to give up. It is a reason to decide, deliberately, how much time and money the debt justifies, and to move faster where recoverability is deteriorating.

Read your own paperwork before you read theirs

The second step is the one that most often goes wrong: reading your own contract properly.

Three things matter. What are the payment terms, precisely — thirty days from invoice, or thirty days from month end? Is there a clause allowing you to suspend supply or charge contractual interest, and at what rate? And is there anything the customer could point at to say the debt is disputed rather than simply unpaid?

That last point decides your route, and getting it wrong is expensive. A customer who has never complained about the goods, never raised a quality issue and simply has not paid is in an entirely different position from one who emailed six weeks ago to say the delivery was short.

The statutory rights most businesses never use

Where the debt is a commercial one between businesses, there is a statutory entitlement to interest and to fixed compensation on top of the debt, under the Late Payment of Commercial Debts (Interest) Act 1998.

The rate is eight per cent above the Bank of England base rate, and the fixed compensation is £40, £70 or £100 depending on the size of the debt. On a single small invoice that is not transformative. Across a ledger of forty late payers it changes the arithmetic, and — more usefully — it changes the conversation. A customer who has been treating your invoice as free credit tends to behave differently once the cost of not paying is a number on a page rather than an irritation.

Claiming it properly matters. The entitlement arises automatically, but it is routinely given away by accident, in correspondence offering to settle for the invoice value before anyone has thought about it.

The letter that does the work

Most debts that are going to settle, settle at the letter stage. That letter is not a threat dressed up in legal language. It works because it is specific.

It sets out the contract, the delivery, the invoice, the due date and the amount. It states the interest and compensation being claimed and shows how they are calculated. It gives a short, definite deadline. It says exactly what happens when that deadline passes. And it is written on the assumption that a judge will read it later, because one might.

What it must not do is bluff. A letter threatening a step you have no intention of taking is worth less than no letter at all, and the second one is worth nothing.

Statutory demands, and why they are not a collection tool

There is a route founders hear about and reach for too quickly. Under section 123 of the Insolvency Act 1986, a company is deemed unable to pay its debts if it fails to satisfy a written demand for a sum exceeding £750 within three weeks.

That threshold makes it look like a cheap lever. It is not. A statutory demand is a step towards winding the company up, not a payment reminder. Used where the debt is genuinely disputed, it can result in the petition being restrained and costs awarded against you, and it is the single most reliable way to turn a recoverable debt into an expensive fight.

Used correctly — an undisputed debt, a customer who can pay and will not — it is the most effective pressure available anywhere in the process. The difference between those two situations is a judgement call, and it is worth making before the demand is served rather than after.

The clock nobody watches

An action founded on simple contract cannot be brought after six years from the date the cause of action accrued, under section 5 of the Limitation Act 1980.

Six years sounds generous. On a real ledger it is not. Old debts do not sit still: the person who ran the account leaves, the delivery notes are archived, the email thread proving the variation is on a laptop that was wiped two years ago. The practical limitation period on most commercial debts is the point at which you can still prove them, and that arrives long before the legal one.

Where a specialist is needed

Parts of this sequence are reserved activities, and parts are tax questions.

Issuing and conducting court proceedings, and advocacy in court, sit with regulated litigators. Dinmore Bell instructs and manages one where the matter reaches that point, rather than handing the file over and stepping back. Formal insolvency processes, once a company is genuinely in difficulty, belong with a licensed insolvency practitioner. And the tax treatment of a debt you decide to write off, including VAT bad debt relief, is a question for your accountant — the useful thing is that they are asked at the right moment rather than after the year end.

What Dinmore Bell does with this

Dinmore Bell runs business-to-business debt recovery as a retained function rather than a series of separate instructions.

That means assessing recoverability before anything is spent, owning the pre-action strategy and the correspondence under its own name, choosing the route — negotiated settlement, payment plan, formal demand — and escalating deliberately rather than reflexively.

It also means the unglamorous preventative half: payment terms that are actually enforceable, credit checks before the second order rather than after the fourth, and a ledger somebody looks at every week instead of every quarter.

What it does not mean is running up fees on a debt that was never going to be collected. Where the honest answer is that the money is gone, that is the answer, and it arrives early enough to be useful.