Blog; Stopping Money Owed to You Turning Into Bad Debt

Running a business is all about balance and managing cash flow is one of the trickiest, yet most essential, parts of it. For service-led businesses especially, work is usually delivered before payment is received, which can sometimes lead to late payments or unpaid invoices.

When that happens, it’s more than just an inconvenience. It can disrupt your day-to-day operations, affect your team, and impact your ability to serve your clients. At HAE Insurance Services and EHA Insurance Services, we understand how important it is to protect what matters most, and that includes helping you navigate the risks of bad debt.

There are many reasons for clients not paying for a product or service. Sometimes it’s due to a disagreement about what has been provided, but other times it’s down to something as simple as the client being under-resourced and running late. Here are seven reasonable steps you can take if your client hasn’t paid:

If you have an invoice outstanding, send a ‘late payment reminder’ message to the client, reminding them that payment is due, and requesting that they pay as soon as possible.

If you still haven’t received payment, follow up with a more forceful ‘late payment demand’ letter, requesting payment within a set time period (e.g. seven days). You could also make a claim for interest.

Send a formal ‘letter before action’ notifying the client that you intend to issue court proceedings to recover the outstanding sum. This will maximise your prospects of recovering your legal costs.

If the debt remains unpaid, you have two options: court action or insolvency proceedings.

If a client or customer hasn’t paid what they owe, and other options haven’t worked, you may choose to take legal action. A claim can be issued against either a business or an individual. To begin, you’ll need to complete a claim form with the details of the debt and submit it to the court along with the issue fee. Once the claim is issued, the court will serve it to the debtor, who must acknowledge it within 14 days and respond fully within 28. The debtor may admit the claim, file a defence, or submit a counterclaim. If the amount is under £10,000, the case will likely be allocated to the small claims track. In this track, only court fees and fixed costs are usually recoverable if your claim is successful.

If a business client owes more than £750 and can’t pay, you can petition the court for a winding-up order. The threat of liquidation often prompts prompt payment. If the company is wound up, creditors may receive a dividend from its assets. If a client owes you more than £5,000 personally, you can file a bankruptcy petition. A bankruptcy order allows the court to seize and sell their assets to repay debts.

If a debtor doesn’t respond to a court claim or fails to pay after a judgment has been made, you may choose to take enforcement action. While this can involve extra costs and doesn’t guarantee success, there are several options available. These include:

Each route has its own process and implications, so it’s important to consider the best option for your situation.

Before taking formal legal action, it’s important to weigh up your options. Consider the likely outcome, the time and cost involved, and how it might affect your relationship with the client. A detailed cost–benefit analysis can help you decide whether it’s the right step.

For some businesses, a payment plan or deferred payment may be the best solution. For others, legal action might be necessary. Whatever route you take, it should be informed, proportionate and aligned with your long-term goals.

Whether you’re just starting out or growing your business, having the right insurance in place gives you the confidence to focus on what matters most.

At HAE Insurance Services and EHA Insurance Services, we offer tailored trade credit insurance, and if you’re facing challenges with bad debt, we’re here to help you explore practical solutions and support you through the next steps. Speak to the team on 0330 018 2299 or email send them an email.

HAE Insurance Services and EHA Insurance Services are trading names of Advisory Insurance Brokers Limited, which is authorised and Regulated by the Financial Conduct Authority (Firm Reference Number 313250). Registered in England and Wales, Company No. 4043759. Registered Address: 2 Minster Court, Mincing Lane, London, EC3R 7PD.