Sole trader or partnership not paying: who can you chase?

Who you chase depends on who legally owes the money, and that depends on how your customer trades. A sole trader is personally liable for their business debts. Partners in an ordinary partnership are liable jointly for the firm’s debts. A limited company or an LLP is a separate legal person, so the debt is theirs, not their directors’ or members’, unless someone gave a personal guarantee. Getting this right before you write your first letter saves weeks and avoids costs problems later.

Start with what’s on the invoice

Many unpaid invoices go to a trading name, not a legal entity. “Smith & Co Plumbing” might be a limited company, a partnership or one person using a business name. The free Companies House register answers that in a minute: if the name has a registered number, it is a company or LLP. If not, it is almost certainly a sole trader or an ordinary partnership, and you need the names of the people behind it.

Sole traders: the debt is personal

A sole trader and their business are one legal person. There is no company between you and their own assets, so the debt is theirs personally and any court judgment is against them personally.

Because the debtor is an individual, the Pre-Action Protocol for Debt Claims applies: your letter of claim should give them 30 days to respond and enclose the information sheet, reply form and financial statement form. Skip that and you risk a costs penalty or a stay if you later go to court. Our guide to the letter before action covers what to include.

Partnerships: the partners are liable

An ordinary partnership is not a separate legal person for this purpose. Under section 9 of the Partnership Act 1890, every partner is liable jointly with the other partners for the debts and obligations of the firm incurred while they were a partner. In Scotland they are liable severally as well.

For you, that means the partners themselves are in the frame, not only the firm’s bank account. It also means one partner’s good credit can be the reason a partnership debt gets paid. Work out who the partners were when the debt was incurred: the contract, emails and signatures will usually tell you. Because the partners are individuals, the Pre-Action Protocol applies here too.

Limited companies and LLPs: a separate legal person

A limited company’s debts are the company’s. A director is not personally liable for an unpaid invoice just because they run the business, and it is a common mistake to threaten one. An LLP is also a body corporate with a legal personality separate from its members, under section 1 of the Limited Liability Partnerships Act 2000.

A director or member can become personally liable in two main ways:

• A personal guarantee. If they signed one with your credit application or contract, you can pursue them under it. Check your paperwork before you write anyone off.
• The invoice was in their own name. If you contracted with the individual rather than the company, the individual owes you.

If the company has been dissolved or has gone into liquidation, read what creditors can do when the debtor company is dissolved or insolvent.

Which route fits

For a company, a letter before action is the usual first step, and a statutory demand is available for a debt of more than £750. For an individual, the statutory demand threshold for bankruptcy is £5,000 or more, and it is a heavy tool with real risks, so most creditors are better off with a letter, an agency or a claim.

On a qualifying business-to-business debt you can add statutory interest at 8% plus the Bank of England base rate and fixed compensation per invoice, whichever kind of business owes you. The free late-payment calculator works it out.

Scotland and Northern Ireland

In Scotland partners are liable severally as well as jointly, and the small claims limit under Simple Procedure is £5,000. Northern Ireland has its own courts and a £5,000 small claims limit. Use an agency that genuinely covers the debtor’s jurisdiction: see our Scotland and Northern Ireland pages.

The short version

Find out who the legal debtor is, write to them, and keep the personal guarantee in your back pocket. Then compare vetted UK debt recovery agencies on Collect Compare, with names hidden until you choose, or let us match you to the right one. It is free for creditors: the agency you choose pays for the introduction, and no agency can pay to rank.

This is general information, not legal advice. Liability for a debt depends on the contract and the facts, so take advice before pursuing a named individual.