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Bad Debt

Are you self-employed or running a small business, managing every aspect of your business? 

It can be especially difficult if your customers do not pay you on time.  Having to chase for payment can be very stressful. 

This article provides some helpful hints and tips to try and prevent overdue invoices.

  • If possible, you should request payment in advance or on account, at least to cover your overheads.
  • Maintain a good customer relationship and set reasonable customer expectations.
  • Do not undertake work until your terms of business, which includes payment terms and bank details, have been signed.
  • Have a credit control system suitable for your business detailing the steps to be taken when a customer fails to pay in your usual payment terms, such as setting calendar reminders for when payment are due, a template chaser e-mail explaining that if payment isn’t received you will charge contractual or statutory interest.

Taking on new customers can be high risk.  Having agreed costs upon commencement, it is important to meet the expectations set.  If your terms of business are not observed or pursued with regards to billing, this will inevitably create pressure on your cash flow, requiring you to chase payment and taking you away from trading your business. 

Know your Customer

Try and obtain as much information about your customer as possible.  Ongoing monitoring of your business relationship will assist you should any changes arise within the business.

Depending on the value of the contract, you may also consider obtaining:

  • Bank references
  • Trade references
  • Credit references & company reports
  • Search at the Register of County Court Judgments at www.registry-trust.org.uk a report will cost £4
  • Company Searches at www.companieshouse.gov.uk
  • Ensure you have the contact details of your customers decision makers, the ones responsible for making payments

Unpaid Debt or Genuine Dispute

Which one of these is your debtor?

Can’t Pay? Don’t Pursue

  • Loss of income
  • Low income 
  • Over commitment
  • Increased or unexpected expenses

Won’t Pay? Pursue

  • Withholding money on principle
  • Working the system 
  • Ducking responsibility

 Neither Can’t Pay or Won’t Pay - Maybe Pursue

  • Genuine Dispute
  • Disorganised 
  • Third Party Error

Other Considerations

Does your particular industry have guidance or a code of practice on debt collection?  If so, obtain a copy and check the recommended debt collection procedures you should be following.

Be careful not to breach the following:

Section 40 Administration of Justice Act 1970

“Harass the other with demands for payment which, in respect of their frequency, or the manner or occasion of making any such demand, or any threat of publicity by which any demand is accompanied, are calculated to subject the debtor or a member of their family or household to alarm, distress or humiliation.”

Protection from Harassment Act 1997

  • Criminal offence and civil remedy available to debtors in the County Court
  • Must not pursue a course of conduct which amounts to harassment of another, and which you know or ought to know amounts to harassment of the other

It is pointless to:

  • Pressurize a debtor who can’t pay
  • Ignore claims that the debt is disputed, obtain as much information as possible and reply accordingly
  • Refuse to deal with debt management companies
  • Not stopping collection activity while investigating a reasonably queried debt, you could be wasting your money

More Effective to:

  • Communicate with your debtor pre-action either by telephone or e-mail
  • Communicate with their debt advisor
  • Know the debtor, obtain a financial statement
  • Tailor your debt recovery action accordingly

Late Payment of Commercial Debts Act 1998

If you are a business selling goods or providing a service to another business, if your terms of business do not provide for contractual interest on late payments, under this Act you can claim from your debtor statutory interest and compensation for late payment.

Small Claims

If your payment demands have not resulted in payment, for debts of under £10,000 the next step would be to consider a small claim.

Judgment Enforcement

If you have obtained a County Court Judgment against your debtor, you will then need to consider what methods of enforcement you could try.


If you have an overdue invoice, or you require new terms of business contact Mercian Law either on our website web chat function, or by calling 01827 215679 to discuss how we can be of assistance and the fees involved.


Please note that this article does not constitute legal advice.  Mercian Law Limited have tried to make this article as accurate and complete as possible at the date it was written.  The laws of England and Wales change frequently, and you are advised to take legal advice before embarking on any legal action.


Posted by Verity Grigg


Bad Debt