Legal action you can take - Small Business Commissioner (2024)

Before taking action

There are things you can do to help you decide if legal action is worth your time and money.

Check if your customer is likely to pay

Legal action probably won’t work if your customer has no money or assets, or a lot of bad debts. Even if a court orders them to pay, action to make them pay (enforcement) will be difficult.

Checks you can do include:

searching company profiles in the Gazette for insolvency notices – look for a ‘resolution for winding up’, ‘petition to wind up’ or ‘winding-up order’
using a credit agency to check for bad debts (you usually need to pay for a subscription)
searching court records on Trust Online to check if a customer has been sued or fined for not paying others (fees start at £4)

What to do if you see insolvency notices

Insolvency notices mean that a company is closing (being liquidated or ‘wound up’). This is often because it can’t pay its debts.

You’ll need to register as a creditor – you won’t be guaranteed payment, but your business might eventually get some of what it’s owed.

What to do if you’re sure your customer won’t pay

You can usually write off an unpaid invoice as a ‘bad debt’ if you’re sure it will never be paid.

You do this by claiming the debt as a:

business cost on your Company Tax Return – use an accountant or tax adviser if you need help
business expense on your Self Assessment Tax return if you’re self-employed as a sole trader or in a partnership

Consider getting legal advice

A short appointment with a solicitor or legal adviser can give you a better idea of what legal action might work in your situation.

Most solicitors offer a short first appointment for a small fixed fee, or for free. You can:

search for a solicitor or legal adviser that does this – you’ll need to contact them to ask
ask your local Citizens Advice or law centre if they have a list of legal advisers that do this
use Lawyers for your Business to get a free 30-minute consultation in England or Wales

It’s best to choose someone with experience in debt recovery. The Law Society and Citizens Advice websites have advice about questions to ask before and during your appointment.

Taking action

Starting legal action can eventually mean taking a claim to court and getting a binding decision from a judge. But you might not have to – sending a solicitor’s letter or making a money claim can sometimes prompt a customer to pay what they owe you, without having to go to court.

You should still make sure you’ve done everything you need to in case you do end up in court.

Documents you need before you start

Make sure that you have proof that you’ve tried to resolve the payment problem with your customer before taking legal action. If you don’t, it could count against you if you go to court.

You should have:

emails, letters or other records showing that you’ve tried to negotiate or use mediationor tried other alternatives to court
sent your customer a letter to warn them about the action you’ll take if you’re not paid – consider using a solicitor to do this

What to include in the letter

This is often known as a ‘final payment notice’ or ‘pre-action letter’. Address it to your customer and include:

business names and addresses for you and your customer
the goods or services that they owe you for
how much they owe you, including any interest and compensation
how you calculated the amount owed
what you’ve already done to try to get the money
dated copies of any relevant documents, for example purchase orders, invoices and statements
a reasonable deadline for paying or responding (at least 14 days)
what you’ll do if they don’t pay or respond, for example make a court claim for the money

The letter should also ask your customer to write back if they don’t agree with the letter, or they have another issue with paying. Ask them to include their reasons for disagreeing, giving details and attaching any relevant documents.

If you haven’t already talked to your customer about using mediation or other options if you’re owed more than £3,000, it’s a good idea for your letter to offer these as a way to avoid court.

Using a solicitor to send a letter

You don’t have to use a solicitor, but your customer might take a letter more seriously if you do. A solicitor can also make sure it includes everything that’s needed in your situation, in case you decide to go to court.

Contact a solicitor to check what it will cost and what’s involved. They may be able to draft a letter for a fixed fee based on the details you give them by email or phone. Or they may want to meet in person to discuss your situation.

Solicitors’ letters start at
around £20.

This is based on a fixed fee. Hourly rates are usually at least £50.

Making a money claim

You can make a court claim for the money you’re owed (often called a ‘money claim’ or ‘small claim’). It can include any interest and compensation you’re owed.

Your customer might pay soon after they get your claim, to avoid getting a court order against them. If they do, it won’t cost you any more than the initial fee, and you won’t have to go to court.

If you’re owed a lot of money, or the situation is complicated, you’re less likely to get paid immediately. Your claim could go to court if your customer disagrees with your claim, which can be expensive and take a long time.

It’s best to get legal advice before deciding to make a court claim if:

your customer could argue that they didn’t pay for a reason, for example they’re unhappy with your goods or services
your contract is complicated – a solicitor or legal adviser can check if any terms or conditions could be a problem in court
you’re owed over £10,000 in England or Wales, £5,000 in Scotland or £3,000 in Northern Ireland

Find out how to make a claim and how much it costs in:

Mediation before a claim goes to court

If your customer disputes your claim, you may be offered mediation to try to resolve the issue before it goes to court. This is free, and if it works it will save you the time and money involved in going to court.

Taking a claim to court

You don’t have to use a lawyer, but you can if you want to. However, you won’t usually get the legal fees back if you win – if the court orders your customer to pay your costs, this usually only covers court fees and small amounts for things like travel, overnight accommodation and loss of earnings to attend court.

The judge’s decision is binding. If you lose, you may get a court order against you and be ordered to pay your customer’s court costs.

If you win, you may still need to take further action to enforce the court order (the ‘decree’ in Scotland).

Hearing fees to go to court start ataround £25 to £35.

This is based on claims for less than £300. The exact fee depends on:

how much you’re owed
where you are in the UK

There are extra fees for enforcing a court order or appealing.

Enforcing payment after a court order

If your customer doesn’t pay after the court orders them to, you may want to take further action. Keep in mind that you’ll have to pay more court fees, and you’re unlikely to be get what you’re owed if your customer doesn’t have the money.

There are fees for each step of the process. For example, in England and Wales you might have to pay around £242 in fees before you can send bailiffs to collect the money.

Follow the process for:

Fees to begin enforcement start at around £55.

Exact fees depend on:

where you are in the UK
what steps you ask the court to take

There are extra fees for each step of enforcement.

Other types of legal action

Statutory demands are sometimes described as another way of getting a debt paid. These are actually the start of a court process that’s used to wind up a company that owes you money. Doing this takes a lot of time and money – and it may not help you get what you’re owed.