Small business debt recovery: how to get paid, step by step

Small business debt recovery usually runs through five escalating steps: a friendly reminder, a formal chaser adding statutory interest and compensation, a letter before action, instructing a debt collection agency, and - as a last resort - court action and enforcement. Most debts settle well before the later stages. The one rule: chase promptly, and escalate the moment a step is ignored.

Late payment is the quiet killer of small businesses - not because any single invoice sinks you, but because chasing them drains time and cash flow you can’t spare. The good news: recovery is usually a series of escalating steps, and most debts settle long before the later ones. Here’s the path, and when to move up it.

1. The friendly reminder

A quick, polite nudge on or just after the due date clears a surprising number of invoices - they were simply missed or stuck in someone’s approvals inbox. Re-send the invoice, confirm the amount, and ask when you can expect payment. Keep it warm; you’re assuming an oversight, not a refusal.

2. The formal chaser

If the reminder is ignored, change the tone. State the amount, the days overdue, and that statutory interest and compensation are now accruing. This is where a lot of businesses undersell themselves - you’re legally entitled to add these to a commercial debt, and saying so signals you know your rights. (See how much you can charge.)

3. Letter before action

This is the last step before formal recovery. It sets out the debt, the extra sums due, and warns that you’ll instruct an agency or start court proceedings if it isn’t paid within a set period - commonly 7 to 14 days for a business, or 30 days where the debtor is an individual or sole trader. Our calculator generates one for you, with the interest and compensation already worked out. More on getting it right in our letter before action guide.

4. Instruct a debt collection agency

For most small businesses, this is the sweet spot. An agency recovers on your behalf - often on a no-collection-no-fee basis - without you having to go near a court, and a professional third party usually gets more traction than another email from you. The trick is picking the right one: compare vetted agencies on fees and track record, or read how to choose a debt collection agency.

5. Court action and enforcement

If the debt is genuinely disputed or the debtor simply won’t engage, the County Court is the formal route - and for smaller sums, the small claims track handles claims up to £10,000. Win a judgment and still not get paid, and you can move to enforcement, including High Court Enforcement Officers for judgments of £600 or more. It’s slower and involves fees, so it’s usually a last resort - but the credible threat of it often does the job on its own.

The one rule

Don’t leave it. The older a debt, the harder it is to recover, and the more likely a time limit eventually gets in your way. Move through the stages promptly, and escalate the moment a step is ignored.