Small Business Debt Recovery Process

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Small Business Debt Recovery Process

Give us two minutes, we’ll demonstrate how a Directors’ Agreement has the power to safeguard your debt recovery process.

We have no doubt that you’ll agree, it’s important that you are paid for the goods and services your business has provided.  Because late payments – or people trying to avoid payment – is costly.  Not only to the long-term health of your business, but to your employees, family and well-being.

Google ‘debt recovery’ and you’ll uncover a multitude of guides for business.  Each one listing the trusted process of; invoice, chase, credit hold.

But what’s usually missing is the single most important foundation to the whole process – the Directors’ Agreement.

To help, we’ll run through the TM Law Debt Recovery Process, explaining where and why a Director’ Agreement should feature;


  • Due diligence

Successful debt recovery starts by making sure you know who you are dealing with.   That means whether the person or business you are providing goods or services to is an individual or partnership etc.  Gather full names, and complete contact information of those you are contracting with.


  • Directors’ Agreement

If you are dealing with a limited company, know its full legal title as well as its trading name.  Request a Directors’ Agreement, otherwise known as a personal guarantee, from the company director.  This means that if the company doesn’t pay, the guarantor will.  If you’re unfortunate enough to find yourself at point 5 in this process, the Director’s Agreement will safeguard your debt recovery.

If your customer declines to provide a personal guarantee, then we advise the businesses we support to reconsider their suitability for credit.


  • Follow recognised bookkeeping best practice

This includes; clear payment terms, swift invoicing, correct details within invoice, and consistent credit control.


  • Be firm and swift

Chase, and then place credit on hold.  At this stage it’s also sensible to instruct a solicitor to issue a debt recovery letter.  Don’t feel embarrassed.  The longer you delay, the harder it’ll be to recover the debt.


  • Take legal action

If the debtor fails to pay, instruct a solicitor to serve a statutory demand threatening bankruptcy or winding up proceedings.  If the letter of claim does not result in your money being paid, or a payment plan being set up, then court proceedings will be necessary and again the sooner the better.


  • Court proceedings

Instruct a solicitor to prepare and issue a claim against your debtor.  There are two fees to consider; a court fee based on the amount you are owed, and the solicitors fee for preparing and issuing the claim.

Court fees are added to the amount owed.  But your solicitors’ fee is limited to a fixed amount, less than the solicitor will usually charge.

Interest and compensation is claimed under the Late Payment of Commercial Debts (Interest) Act 1998.  This usually equates to more than the solicitors fee for issuing the claim.

What happens next depends on whether the debt claim is contested.


To discover more about the pre-action protocol for recovering debt from an individual (this includes sole traders) read our recent blog – Pre-Action Protocol for Debt Claims





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About TM Law – Specialist Debt Recovery Solicitors


Based in Hockley, Essex, TM Law is a small and dedicated solicitors.  With many years’ experience, helping business owners and local individuals with matters of personal injury, compromise agreements, employment disputes, debt collection, commercial disputes and much more.

As a specialist debt recovery solicitors, TM Laws’ knowledge of the debt recovery system available to recover money is second to none, and their approach is proven to achieve maximum recovery for minimum outlay on behalf of local business.

For a personal service, practical advice and quick recovery of your money contact us today.  We offer a fair, fixed fee service and we’re always happy to help.

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