If your business raises invoices, you could be all too familiar with late payments. Maintaining a steady cash flow is crucial for sustainability and growth of your business, but overdue and unpaid payments can significantly impact your cash flow and your business’ profitability. If attempting to recover the invoice amicably fails, you may need to implement an effective debt collection strategy. 

In this guide, we'll walk you through key steps and best practices for successful debt collection. 

When should you consider debt collection?

If the invoice is 30 days overdue, it can be considered late.

If your customer has ignored all attempts to communicate with them and payment requests after 30 days, it could be time to consider debt collection. 

After 30 days overdue, you are entitled to add late payment interest to the total amount owed. The amount you can charge is 8% plus the Bank of England base rate. However, you will not be able to claim statutory interest if there’s a different rate of interest in the contract. You can familiarise yourself with the Late Payment of Commercial Debts (Interest) Act 1998 for further guidelines.

When considering debt collection, bear in mind that the collection process is often lengthy and will undoubtedly put strain on your relationship with the customer. Debt collection should be a last resort if any attempts to amicably resolve the overdue invoice are unsuccessful.

Tips to avoid late payments

Prevention is better than cure, try to implement good credit control practices, such as credit checking your customers as a first port of call to prevent future late payments. You can also implement the following: 


  • Clear and speedy invoicing 

A clear invoicing process can significantly reduce the chances of unpaid debts. Ensure that your invoices are raised promptly, contain all necessary details, including a breakdown of products or services provided, payment due dates, and payment methods. The clearer your invoices, the less room for misunderstandings. You can use an invoice template to ensure that your invoices meet these requirements. 

  • Transparent late payment terms and penalties

Setting clear and transparent payment terms including late payment penalties, and interest rates for overdue invoices in your contracts and agreements can establish expectations and act as a deterrent for late payments. 

  • Friendly reminders

Sometimes, late payments are unintentional. Send friendly reminders a few days before the due date and again after it passes. This shows your commitment to customer relationships and gives them a chance to rectify the oversight without resorting to formal debt collection methods. You can use invoicing software to set up automatic reminders to save time. 

  • Follow-up communication

If an invoice remains unpaid after the due date, initiate more direct communication. A polite but firm phone call or email can help determine the reason for the delay and find a resolution. Maintain professionalism and emphasise your willingness to work together to resolve the matter.

The debt collection process


Letter before action 

If your attempts to receive payment have been ignored so far, the first step you can take in the debt collection process is to send a letter before action (LBA), 30 days before you take any further steps. 
It's an important step as it demonstrates  that this is serious  and shows the customer that you are willing to take legal action to receive payment. 

The letter before action needs to include:

  • The total debt amount owed 
  • The latest date payment must be made by
  • Any additional late fees

You can use a letter before action template to ensure you have all the information required. If you’re still unsure, you could also seek legal advice.

Often, this letter can be enough to prompt payment, however in cases where the letter is ignored, it might be time to consider hiring a debt collection agency or solicitor to guide you through the more complex legal proceedings. 


Speak with a debt collection agency 

Following a letter before action, you could consider the help of a debt collection agency who specialise in recovering outstanding payments and can take the burden off your shoulders while helping you decide the best course of action. 


Claims court

When all else fails, you can resort to legal action by making a court claim. You can make a court claim online or by post. After you have issued your claim, the debtor will be notified and they are required to respond. 

If at this point your customer makes the payment, you can update your claim. However if there is no response, you can ask the court to file a judgement. 

If a county court judgement (CCJ) is filed against your debtor, they will be required to pay and you will be allowed to take enforcement action. You can find out more about how to enforce a county court judgement from the government website

If there is any disagreement over the amount claimed, or whether the debtor thinks they owe you money, then you could have to go to a court hearing or be offered mediation. At this point you may consider legal advice to know what the best steps are for your individual circumstances. 

Important tips to remember during the debt collection process

If you trade with other businesses, it’s likely you’ll have to navigate some parts of a debt collection process at some point in your business’ life. 

By establishing clear terms, maintaining open communication, and being aware of all your legal rights and options, you can navigate the process more effectively. You should bear in mind that the goal should be to not only recover unpaid debts, but also to preserve valuable business relationships whenever possible.


If you would like more information on how to resolve late payments and navigate the debt collection process, join our webinar in partnership with dispute resolution law firm, Escalate

You’ll leave with the confidence to tackle payment disputes, while protecting your client partnerships.



If you would like more information on how to resolve late payments and navigate the debt collection process, watch our webinar in partnership with dispute resolution law firm, Escalate. 

You’ll leave with the confidence to tackle payment disputes, while protecting your client partnerships.