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8 Ways to Collect Bad-Debt from Customers

Publish Date: 27 Dec 2020

In order to run a successful business, you need to be hard. There will be times when people owe you money and you must never allow it to slide. On the flip side, as horrible as it sounds, there are people out there who will want to take advantage of you. For these people, you need to know the best ways of collecting debt from clients.

Things business owners need to know when collecting bad-debt from customers is to stay calm, know your rights, Don't harass or threaten your customer, and document all communication. Some people just won't play ball, so these 8 ways could help you collect what you earned.

In this article, we are going to start off rather light and merely advise you on ways you can go about collecting debt yourself. This doesn't always work and in the heavier portions of this article, we will talk about taking legal action against people who don't want to pay you your money. Finally, there are some extremely important things that you need to know.


5 Ways to Collect Bad Debt Yourself

Before taking legal action, you need to make sure that you do everything, within reason to collect the debt without going to court.


#1. Send a Series of Reminders/Statements

Hopefully, you don't have to do this too often because, well, hopefully, your client pays after the first few reminders. However, it is important that you start off by sending your client a reminder in the form of a statement. 

These statements need to be as detailed as possible regarding the work that you did for them and how much they owe you. It is best for you to break down the cost as much as possible.

Remember, there must not be a single error on any statement that you send them because if you take anything to the court at a later date, these statements will be heavily scrutinised. Fortunately for some but unfortunately for you, the legal system does not take any mistakes lightly.

Yes, I mean even the smallest of mistakes. If one word has an error, if any date does not correspond to previous dates, or if one figure is incorrect, it could cause problems for you down the road. 

You also want the statement to reflect any late fees that may be included. However, these late fees need to be agreed upon before you can include them in the total amount owed to you. In some countries, you need to be registered in order to provide credit so you might not be able to charge any interest rates.

With that being said, you can have a set fee that applies for every month that the customer is late.

Finally, in the reminder, you want to be as professional as possible. You can not just say “hey you owe me money, where is it”. You need to be professional and also try and make sure that there are no mistakes in the email or letter as this is almost as important as the statement itself.


#2. Mediation 

Before we get started with the section, it is important to note that a mediator might seem like a lawyer, and a lot of the time they are. However, they can also just be professionals within the industry that have been trained in mediation. They generally have no attachment to the dispute.

Let's say you did construction work for a client and they have not paid. You can either get a lawyer as a mediator or you can get an industry professional to mediate a session with your client.

Whatever industry you are in, you need to do a search for mediators in your area who specialise in your industry.

When setting up a meeting, you should encourage your clients to have his mediator with them as you will have yours. Together, the 2 mediators can help solve the dispute efficiently. They will know exactly what to do in any situation that might come up from either you or the client.

Getting a mediator has a wealth of benefits. They are more often than not, successful in solving disputes. You never know the reason why your client hasn't paid his debt. Maybe there was a misunderstanding between the two of you and as much as it seems as he is the bad guy, misunderstandings do happen.

If your client is going through financial strain and your mediator picks up on this, he will know exactly what to do in this type of situation. He can also advise you on what your next move should be if he cannot solve the dispute.

Finally, having a mediator can significantly cut the cost of retrieving the debt. It is important that you try not to go to court because court hearings can take an extremely long time, even up to a few months. It can also end up costing you more than the debt that is owed to you.


#3. Employ a Debt Collection Service

Employing a debt collection service can be tricky because before any debt collection service takes on a job, they will scrutinise the bad debt. If you do not have all of your ducks in a row, they might not accept the job. This applies to reputable debt collection agents.

It is important to remember that a debt collection service does not make their money until they have collected the debt. Once they have done so, they will take a small cut of the debt. 

While this is enticing to many business owners who have outstanding payments from clients, it does mean that you will need to have all the necessary documentation ready for the debt collector.

Debt collectors are not cheap but they are effective at their jobs. They are effective because if they do not collect, all the work they have done up until that point will be for nothing. So, they are more than likely going to get your money for you.

Many debt collection agencies understand the legal processes and other processes involved in collecting money.

Is a debt collector the best option? Not in my opinion.


#4. Issue a Letter Before Action

Issuing a letter before action is something that gets done when you want your client to know that you are intending to take them to court if they do not pay. Sounds pretty intimidating right? There are however a few things that you need to know.

This is not a letter that states that you are taking them to court, it is a letter that states you have every intention to do so. You need to stipulate a reasonable amount of days that they have to respond to the letter. A reasonable amount of time could be anywhere from 14 to 21 days.

The name “letter before action” is what it sounds like. It is a letter that you deliver before you take the action of taking the person to court. However, the legal system in the UK has a few protocols that you need to follow.

The letter before action is one of the last protocols that you need to follow before taking someone to court. All of the other protocols can be summarised by saying you need to do whatever it takes to settle this dispute out of court.

If the court determines that you did not follow the protocols, it could end up costing you a lot of money and time.

Here is a list of things that a letter before action should contain. I would advise that you get a lawyer to draw one up for you instead of doing it yourself. All you have to do is give your lawyer all of the documentation and speak to them about the case.

  • Names of both parties.
  • The date that the letter is being sent.
  • All the details of the agreement.
  • List how many times you have sent a reminder.
  • Every detail about how much is owed to you must be written down.
  • How long they have to reply (Must be a reasonable amount of time)


As I said, it is better to get a lawyer to do this. I know that we all try to save money but one simple mistake that you may have overlooked in the letter can end up costing you more.


#5. Talk to them in Person

One of the last things you can do is to set up a meeting face-to-face with your client and try to work things out. This is one of the pre-action protocols that should be taken. It is extremely important that you remain professional during the entire meeting.

That old saying that we always hear in movies “everything you say or do can and will be used against you” applies to these situations. If you say something unprofessional to your client they can use that against you if you do eventually go to court.

When having a meeting, you want the client to know that you are serious about getting your money. You also never want to come across as weak, so, do not ever beg your client to pay.

Instead, you should tell him why paying you the money that he owes you is beneficial to him. For example, he won't have to face the embarrassment of going to court if he does not pay and that benefits him more than it benefits you.

Let him know that if he pays you, you might be able to scrub some of the late fees and this is basically offering a discount without cutting into the cost of the agreement. Again, this will benefit him more than it will benefit you.


When Legal Assistance is Needed

If all of the previous steps have failed, it is time to take legal action. Don't be afraid of the legal system, they are here to help you.


Court Action & County Court Judgements (CCJs)

If your client has failed to respond to any of your claims or letters then, unfortunately, you will have to bring court action to your client. 

A county court judgment is a type of court order that you can bring forth to the client that has not paid. Once this has been done, the client will usually end up paying the money. If they keep denying that they owe the money, you may have to come to a hearing and the dispute can end up taking a few months, so, hopefully, they pay.

There is a fee that you need to pay in order to get a county court judgment. Down below is a table that indicates how much you will have to pay to get a court order according to the amount that is owed to you.


                                    up to £300


                                  £300 - £500


                                  £500 - £1,000


                               £1,000 - £1,500


                               £1,500 - £3,000


                               £3,000 - £5,000


                               £5,000 - £10,000


                             £10,000 - £100,000


                           £100,000 - £200,000


                                   Over £200,000



Statutory Demand For Payment

If you are dealing with the sole trader, you can request a statutory demand for payment. This is a form that you fill out and a fee that you pay. You can only serve a statutory demand for payment to someone who owes you £5000 or more.

You then need to serve it to the person who owes you money. You can get a professional to do this for you. It is very important that you get confirmation that the statutory demand for payment was handed in to the client.

You will need to provide proof of the date that your client was served this and you will need to prove that they got it.

If a client knows that you are doing this and they are likely to lose the case, they will pay you because it will bankrupt them. During this bankruptcy, their accounts might be seized and all their debt will be paid including you.

If you are dealing with the sole trader, you can request a statutory demand for payment. This is a form that you fill out and a fee that you pay. You can only serve a statutory demand for payment to someone who owes you £5000 or more.

Winding up petition

I know this might sound like somewhat of a joke however, winding up the clients company is something that you can do. Again, it is a form that you fill out except for this time it is aimed at limited companies.

Winding up a clients company means you are basically starting a petition to have the company dissolved because it is an untrustworthy corporation. Once this happens all the assets will be sold and all their liabilities will be paid... That includes you.

It is never nice to think about doing this to somebody, however your business should always come first, you provided a service and deserved to get paid for it.


Controlled Goods Agreement 

We have all heard of people having stuff repossessed. This can either be vehicles, homes, or any assets that have. We often tend to think that if somebody has their vehicle repossessed it means that they didn't pay their vehicle finance.

This is not always the case. Someone can have their items seized and sold if they owe someone money.

If you succeed in filing a controlled goods agreement, a set of enforcement agents will go to the person's home or place of business and take stock of their belongings. It is at this point that a client will know that you are not joking around and most of the time, they will pay you.

At this stage, this is the only option to save their belongings.


Collecting Bad-Debt From Customers: Things To Note

Now that we have gone through those eight steps, I feel like it is important for me to talk about a few things that you should note about collecting bad debt from clients. We will start off by talking about taking the legal route.

Once you take a client to court over bad debt, it becomes extremely tricky and you will need a good representative. Everything you have said or done, whether it be direct or indirect to the client, will be scrutinised. Any papers such as documentation will also need to be reviewed by the judge.

This is why it is very important that before you go the legal route and while dealing with your client personally, make sure that you have all your ducks in a row. Do not make any mistakes and do not give the client any reason to win the court case.



We have covered pretty much everything there is to know about receiving bad debt from your clients. So, there isn't much more to say. I will close this article off by once again reminding you not to be soft. At the end of the day, your business will not grow if you keep letting people get away with owing you money.

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