Late and unpaid invoices are one of the biggest threats to a small business's cash flow. The good news is that England and Wales gives you a clear, structured route to recover what you are owed, and some useful entitlements to interest and compensation along the way. Here is a practical FAQ-style guide.
Step 1: Chase early and keep records
Start with polite reminders as soon as a payment is overdue, then firmer ones. Keep a clear record of the invoice, the contract/terms, delivery, and all chasers, this evidence is vital if you end up in court.
Step 2: Claim interest and compensation (B2B)
For business-to-business debts, the Late Payment of Commercial Debts (Interest) Act 1998 entitles you to:
- statutory interest at 8% above the Bank of England base rate; plus
- a fixed sum of compensation (£40, £70 or £100 depending on the size of the debt); and
- reasonable costs of recovering the debt.
Mentioning these entitlements in a reminder often prompts payment.
Step 3: Send a letter before action
If reminders fail, send a formal letter before action (letter before claim) setting out the debt, the interest claimed, and a deadline to pay (commonly 14 days), warning that you will issue court proceedings if it is not paid. For debts owed by individuals or sole traders, you must follow the Pre-Action Protocol for Debt Claims, which requires specific information and a reply period (usually 30 days).
Step 4: Court action, usually the small claims track
If still unpaid, you can issue a claim in the County Court (often online via Money Claim Online). Most lower-value claims (currently up to £10,000) go on the small claims track, which is designed to be used without a solicitor and keeps costs low. If you win and the debtor still does not pay, you can use enforcement methods (such as a warrant of control, attachment of earnings, or a charging order).
Step 5: Insolvency routes (for clear, undisputed debts)
For a clear, undisputed debt, you may use insolvency pressure:
- against a company, a statutory demand can be served where the debt is at least £750, and unpaid it can support a winding-up petition; and
- against an individual, a statutory demand is available for debts of £5,000 or more, potentially leading to bankruptcy.
These are powerful but should not be used where the debt is genuinely disputed, that can backfire.
Don't run out of time
Most debt claims must be brought within six years (Limitation Act 1980). Don't let an old debt slip past the deadline.
Key takeaways
- Chase early, keep records, and claim statutory interest and compensation on B2B debts (Late Payment Act 1998).
- Send a letter before action; for individuals/sole traders, follow the Pre-Action Protocol for Debt Claims.
- Use the County Court (usually the small claims track up to £10,000), then enforcement if needed.
- For undisputed debts, a statutory demand can pressure a company (£750+) or individual (£5,000+); mind the six-year limit.
Sources
- Late Payment of Commercial Debts (Interest) Act 1998 (statutory interest and compensation)
- Civil Procedure Rules and the Pre-Action Protocol for Debt Claims; County Court / Money Claim Online; Limitation Act 1980
- Insolvency Act 1986 (statutory demands and winding-up/bankruptcy thresholds)
--- This article is general information about the law of England & Wales as at 2026, not legal advice. For advice on your circumstances, consult a qualified solicitor.