Debt Collections Process: A Step by Step Guide for UK Businesses

An unpaid invoice might start as a simple oversight, but without the right process in place it can quickly become a cash-flow headache for your business. The answer? A measured debt collection process.

This guide explains how to set up a debt collection process, going through each step in detail, from chasing an overdue invoice to claiming statutory interest, sending a letter before action, making a court claim and enforcing a judgment.

Get paid with Wise Business 🌍

---

⚠️ Note: This guide is general information, not legal advice. Debt collection and court processes must be followed correctly and can depend on the contract, facts and jurisdiction. Consult a qualified legal professional for advice on your situation.

Wise Business offers a free Essential plan for basic spending and transferring. If you need to receive money, set up direct debits, or generate invoices, you'll pay a one-time £50 setup fee to unlock the Advanced features.

---

Debt collection process: the main steps

1. Check the invoice and contract first

Before you chase payment, make sure the invoice went to the right person or department, the amount and payment details are correct, and the due date has passed. Gather the contract, purchase order, delivery notes, emails and any evidence that the goods or services were supplied.

This is also the moment to check whether there is a genuine disagreement about the work, price, delivery or scope. Escalating a disputed invoice as though it were an administrative delay can make recovery harder.

2. Send an invoice reminder

Start with a professional, practical reminder. Include the invoice number, amount due, original due date, payment details and another copy of the invoice. Ask for payment or a date when the customer expects to pay.

Many invoices are late because of a missing purchase-order number, a change in an accounts-payable contact or an internal approval delay. A clear reminder can resolve those problems without straining the relationship.

3. Send a firmer overdue-invoice reminder

If there's no response, send a second reminder that's more direct. State that the invoice is overdue, specify how many days it's late, set a clear deadline and ask the customer to raise any dispute immediately.

Keep the tone factual. You want a written record that shows you gave the customer a reasonable opportunity to pay or explain the problem.

4. Consider statutory interest and debt recovery costs

For qualifying late business-to-business payments, GOV.UK explains that you may be able to claim statutory interest at 8% plus the Bank of England base rate.² If your contract already sets a different interest rate, check that agreement before claiming statutory interest.

The daily calculation is:

Unpaid amount × (8% + Bank of England base rate) ÷ 365 × days late

You may also be able to claim a fixed recovery sum. According to GOV.UK, the amount is £40 for a debt up to £999.99, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more.³

Don't add interest or recovery costs automatically. Check that the payment is a qualifying commercial debt and that your contract doesn't set a different arrangement. If the amount is material or the facts are unclear, get legal advice.

5. Send a letter before action

A letter before action is a formal final demand before a court claim. It should set out the parties, invoice number and date, amount owed, what the debt relates to, the relevant contract or purchase order, the evidence you hold, any interest or costs claimed, and a final deadline for payment or a response.

According to the Money Claim Online user guide, pre-action steps usually include sending a letter before making a claim with enough information for the other side to understand your position and respond.⁴

6. Consider mediation or professional help

Mediation can be worthwhile where the customer accepts that some money is owed but disagrees about the amount or payment timing. GOV.UK notes that you may be offered or required to attend mediation after making a claim, and that it's often quicker than going to court.⁵

For a large, disputed or overseas debt, you may also want advice from a solicitor or a debt collection agency. Check the pricing model, the scope of authority you give it and whether its approach suits the commercial relationship.

7. Make a county court claim

If reminders, negotiation and a letter before action haven't resolved the debt, you can make a court claim for money against a person or business that owes you money.⁶ Before proceeding, consider the amount owed, the evidence you can provide, the court fees, whether the debtor is likely to pay if you win, and whether the customer is disputing the claim.

The Money Claim Online user guide explains the online service and the responsibilities involved in a claim for a known amount.⁴

8. Obtain judgment or attend a hearing

After a claim is issued, the defendant may pay, respond, dispute the claim or fail to respond. GOV.UK explains that you can ask the court to order payment where the defendant doesn't respond or refuses to pay what is owed.⁵

If the claim is disputed, you may need a hearing. Keep your invoice, contract, correspondence and delivery or service evidence organised so you can explain the claim clearly.

9. Enforce the judgment

Winning a court claim doesn't automatically mean you get paid. According to GOV.UK, you can ask the court to collect payment from a debtor that doesn't pay after receiving a court order.⁷

The appropriate enforcement method depends on the debtor's circumstances. The Civil Procedure Rules list methods including a warrant or writ of control, third-party debt order, charging order, attachment of earnings order and appointment of a receiver.⁸ Consider legal advice before choosing a route.

How does international debt collection work?

International debt collection follows many of the same early steps, but you will usually need to check the governing law and jurisdiction in your contract, the payment currency, the customer's location, local limitation periods and whether a UK judgment can be enforced where the customer is based.

Before taking formal action, make sure you understand which court has jurisdiction and whether you need local legal advice. Prevention is usually easier than recovery: agree payment terms, currency and payment details before work begins.

Make it easier for international customers to pay you with Wise Business

---

💡 If you want to make it easier for international customers to pay you, Wise Business lets you create custom invoices and receive payments using local account details where available.

Your customers get a clearer way to settle an invoice in a currency they know, giving them - and you - more peace of mind.

---

Wise Business offers a free Essential plan for basic spending and transferring. If you need to receive money, set up direct debits, or generate invoices, you'll pay a one-time £50 setup fee to unlock the Advanced features.

With Wise Business, you can:

• 🌍 Send money to 70+ countries at the mid-market exchange rate with low, transparent fees and no hidden exchange rate markups (product availability varies by region)
• 📥 Receive payments in 24 currencies and counting
• 💵 Get local account details for 8+ currencies, including USD and EUR, to let your customers pay in a currency they know and trust - convenience for them and peace of mind for you
• 💰 Hold money in 40+ currencies
• 🔁 Convert currencies anytime at the mid-market exchange rate with low, transparent fees
• ⚡ Use the batch payments tool to create and send up to 1,000 payments in a single transfer
• 👥 Run payroll and make international payments for up to 1,000 employees all over the world - including paying suppliers using local payment methods like ACH, SEPA, and Faster Payments
• 💳 Get business debit cards with 0.5% cashback for you and your team to keep track of team expenses and spend all over the world, with real-time visibility and categorisation
• 🏢 Manage cash in 55+ currencies across international offices from a single business account and move money between business accounts in seconds (exact speeds can vary depending on individual circumstances and may not be the same for all transactions)
• 🧾 Connect and sync every business transaction to your favourite accounting software, including Xero, Quickbooks, and more
• 🔐 Create your own payment approvals process to manage your team better with customised access for different team members, roles and permissions
• 📑 Create custom professional invoices and schedule invoice payments for future dates
• 📈 Earn variable returns on GBP, USD and EUR with Wise Interest (Capital at risk, growth not guaranteed. Your money is at risk if governments default or interest rates go negative. Rates vary by country and currency. Rates are variable. Visit Wise Interest to find out more)
• 🔗 Create payment links and QR codes to get paid easily (Card payment acceptance for new Wise Business customers is currently unavailable. Payment methods subject to eligibility and availability.)
• ⚙️ Automate payouts with the Wise API (comes with 24/7 customer support, a sandbox account to test integrations, API tokens, and clear documents on how to implement and make the most of our API)

Make the wise choice when selecting a business account for your domestic and global needs.

Be Smart, Get Wise.

Register for Wise Business ✍️

**Investments are not guaranteed, and your capital is at risk.

Wise is an Electronic Money Institution (EMI), so features like Interest and Stocks may be covered by the Financial Services Compensation Scheme (FSCS). For standard cash balances, we safeguard your funds to meet regulatory obligations.

In the UK, Interest and Stocks are provided by Wise Assets, the trading name of Wise Assets UK Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA number 839689).

We do not provide investment advice, and taxes may apply. If unsure, seek qualified financial advice. Full fund information is available on our website.

FAQs

When is a business payment considered late?

If your contract sets a payment date, that normally determines when the invoice becomes late. According to GOV.UK’s late-commercial-payments guidance, agreed payment terms must usually be no more than 30 days for public authorities or 60 days for business transactions; businesses can agree a longer business-to-business period if it's fair to both sides.¹

If you didn't agree a payment date, GOV.UK explains that payment is late 30 days after the customer receives the invoice, or after you deliver the goods or provide the service if that happens later.¹

What is the first step in the debt collection process?

Check the invoice, contract and payment terms first. If the invoice is genuinely overdue, send a clear reminder with the invoice number, amount due, due date and payment details.

When should I send a letter before action?

Send one after reasonable reminders have failed and before you make a court claim. The Money Claim Online user guide explains that pre-action steps usually involve giving the other side enough information to understand your position and respond.⁴

Can I charge interest on an unpaid invoice?

For qualifying late commercial payments, statutory interest can be 8% plus the Bank of England base rate.² Check your contract first, as it may set a different interest arrangement.

Can I charge debt recovery costs?

For a qualifying late commercial payment, GOV.UK sets out fixed recovery sums of £40, £70 or £100, depending on the debt amount.³

Is small claims court an option for unpaid invoices?

It can be. GOV.UK explains how to make a court claim for money.⁶ Check the current process, fees, evidence and suitability before starting a claim.

What happens if I win in court and the debtor still doesn't pay?

You may need to enforce the judgment. GOV.UK explains the available routes for asking the court to collect payment.⁷

How can you prevent late payments?

You can't avoid every late invoice, but you can lower the chance of one becoming a drawn-out collection problem. State the payment deadline, accepted payment methods, billing currency, any late-payment interest, recovery costs, dispute process, transfer-charge treatment and any deposit or milestone requirements in your contract and invoices.

For larger projects, consider an upfront deposit, payment before delivery, milestone billing, recurring invoices or shorter terms for a new customer. Clear invoices, a recognised payment reference, the agreed currency and payment details the customer can use can also reduce payment friction. If you accept more than one currency, make sure the customer knows which account details apply to the invoice.

Sources:

1. GOV.UK — Late commercial payments: charging interest and debt recovery
2. GOV.UK — Charging interest on commercial debt
3. GOV.UK — Claim debt recovery costs on late payments
4. GOV.UK — Money Claim Online (MCOL) user guide
5. GOV.UK — Make a court claim for money: after you make your claim
6. GOV.UK — Make a court claim for money
7. GOV.UK — Make a court claim for money: enforce a judgment
8. Justice UK — Practice Direction 70A: enforcement of judgments and orders

Sources last checked on 21st July 2026