Know Your Rights as a Creditor in the UK #

As a creditor, you have legal protections when a debtor fails to pay. Understanding your rights helps you recover debts faster and take action before it’s too late.

Key takeaway: Whether you’re chasing late payments or dealing with insolvency, knowing your legal rights is the first step to getting your money back.

1. Your Core Legal Rights as a Creditor #

The right to be paid on time.
The right to charge interest on late payments.
The right to recover debt collection costs.
The right to take legal action.

Good to know: These rights apply automatically, even if they’re not in a contract.

2. Late Payment Rights (Get Paid Faster!) #

The Late Payment of Commercial Debts (Interest) Act 1998 gives you:

Statutory interest – 8% + Bank of England base rate.
Fixed late payment compensation – £40 to £100 per invoice.
Right to claim reasonable recovery costs (e.g., debt collection agency fees).

These rights cannot be removed by contract!

How to use this:

Add a late payment clause in contracts.
Remind debtors of your right to charge interest & fees.
Send a formal demand letter before escalating.

3. Contractual Rights (Protect Yourself Before Problems Arise) #

Your contract can include:

Clear payment deadlines (e.g., “Payment due within 30 days”).
Custom late payment interest rates (higher than statutory interest).
Suspension rights – Stop services if not paid.
Termination clauses – End agreements for non-payment.
Retention of title (ROT) clauses – Keep ownership of goods until fully paid.

Tip: A strong contract gives you leverage in disputes.

4. Creditor Rights in Insolvency (What Happens if a Debtor Goes Bust?) #

If your debtor enters liquidation, administration, or bankruptcy, you have the right to:

Be notified of insolvency proceedings.
Submit a claim for the money owed.
Vote in creditor meetings (e.g., appoint a liquidator).
Challenge unfair transactions (e.g., if assets were transferred to avoid paying you).
Receive updates on asset sales & creditor payments.

But be aware:

Secured creditors get paid first.
Unsecured creditors (most suppliers) are at the bottom of the priority list.
Act fast – The longer you wait, the lower your chances of recovery.

What you can do:

Check if the company is still trading before delivering goods/services.
Monitor debtor finances – Late payments could be a warning sign.
Consider requesting personal guarantees from directors.

5. Enforcement Rights (How to Force Payment) #

If a debtor refuses to pay, you can:

Issue a statutory demand (A formal 21-day payment notice – can lead to insolvency action).
Begin court proceedings (County Court or High Court claims).
Enforce a court judgment (Bailiffs, High Court enforcement).
Petition to wind up a company (For debts over £750).
Use a debt collection agency (Recover money without legal action).

Important: If you take too long to act, the debtor may go bust before you recover anything!

Tip: A statutory demand is often enough to make debtors pay quickly.

How to issue a statutory demand

6. Protection Against Unfair Practices #

As a creditor, you are protected against:

Unfair contract terms (e.g., “No refunds under any circumstances!”).
Bad faith insolvency transactions (e.g., transferring assets to avoid paying you).
Unlawful trading (e.g., directors knowingly trading while insolvent).

Your rights include:

Challenging unfair terms in contract disputes.
Reporting wrongful trading to insolvency practitioners.
Seeking personal liability orders against directors in extreme cases.

Taking early action prevents financial losses.

Take Action: What Should You Do Next? #

If a debtor is late: Send a formal demand & charge statutory interest.
If a company is struggling: Check if they’re still trading before extending more credit.
If they ignore payment: Consider legal action or a statutory demand.
If they’re insolvent: Submit your claim ASAP & monitor proceedings.

Don’t wait – the sooner you act, the better your chances of getting paid!