Debt Recovery

Most, if not all, businesses will need to pursue an unpaid invoice at some time. This checklist highlights the advantages and disadvantages of the main options available to your business when trying to recover a fairly modest trade debt.

Court proceedings

There are a number of points you should consider before starting court proceedings:

  • Is it cost effective to engage a solicitor?  Generally claims  under £10,000 fall within the Small Claims jurisdiction.  As such, legal costs are not recoverable
  • Conduct a cost/benefit analysis before initiating proceedings. Make sure you factor in the cost of enforcement
  • Be cautious about starting proceedings if you do not intend to see them through. You will almost certainly be liable for the other party’s costs if you discontinue your claim
  • Be careful about threatening to start formal recovery proceedings if you do not intend to do so. The other party may call your bluff
  • Remember that your recovery of costs will depend on:
    • when the matter is concluded (whether before or after proceedings have been commenced);
    • the financial value of the claim and consequently the track the claim is allocated; and
    • how the claim is concluded (whether by agreement or at trial).

Insolvency proceedings

In some circumstances, you may be able to recover a debt from a company by issuing winding up proceedings against a Company debtor, or bankruptcy proceedings against an individual debtor

We will discuss this method of debt recovery with you where we consider the circumstances appropriate.

What is a statutory demand?

A statutory demand is a written notice in a prescribed form demanding payment of a debt.  There are a number of advantages of serving a statutory demand:

  • Preparing and serving a statutory demand is relatively quick and inexpensive
  • A statutory demand will often result in payment being made without the need to resort to bankruptcy or winding up proceedings.

What is a winding-up petition?

  • Commencing winding-up proceedings can put considerable pressure on a company to pay an outstanding debt promptly
  • The court requires a creditor to behave reasonably before starting winding-up proceedings and, in particular, to write to the company with details of the debt and demanding payment
  • This process is only suitable to debts which are undisputed.  It is an abuse of process to issue a winding-up petition if a debt is genuinely disputed.


Reaching a settlement

It almost always makes sense to consider informal methods of recovering a debt (for example, through negotiation or mediation)  where possible. It is almost always sensible to consider negotiating an agreed settlement in order to avoid the significant costs and risks associated with litigation, in addition to the time and resources which it inevitably requires.


Negotiation is a dialogue intended to resolve a dispute and produce agreement on a future course of action. One way in which a trade debt might be recovered is by opening a negotiation with the debtor. This can be done verbally (through a telephone call) or in writing (for example, by e-mail).  Settlement discussions should always be conducted on a "without prejudice" basis.  


Mediation is a flexible, voluntary and confidential form of dispute resolution in which a neutral third party assists parties to work towards a negotiated settlement of their dispute. The parties retain control of the decision whether or not to settle and on what terms.

The without prejudice rule

Parties usually negotiate on a without prejudice basis. This rule generally prevents statements made in a genuine attempt to settle an existing dispute (whether made in writing or orally) from being put before the court as evidence of admissions against the interest of the party which made them.

Doing nothing

If you decide to write off the sum that you are owed, you should firstly consider:

  • the size of the debt
  • the likely cost of recovering the debt
  • the importance of the current relationship between the parties
  • the likelihood of maintaining an ongoing commercial relationship between the parties.

More information

If you have any queries about the content of this checklist, please contact Alison Green.