Statutory demand for an unpaid invoice: how it works when a company owes you money

When a limited company ignores your invoices and your reminders, you may come across the statutory demand. It is a formal demand for payment under insolvency law, and it can lead to a winding up petition against the company. That makes it a serious step, with real costs. Here is how it works, based on GOV.UK's guidance.

What is a statutory demand?

GOV.UK says you can make a statutory demand to ask for payment of a debt from an individual or a company. Anyone who is owed money (the "creditor") can make one, and you do not need a lawyer.

GOV.UK also says:

• if the debt is over 6 years old, you cannot usually make a statutory demand
• there may be faster ways of getting smaller debts paid than making a statutory demand

What the company has to do

When a company receives a statutory demand, GOV.UK says it has 21 days to either pay the debt or reach an agreement to pay.

GOV.UK's guidance for companies that receive a demand lists four ways to respond: pay the debt, reach an agreement with the creditor to pay in the future (for example through a Company Voluntary Arrangement), go into administration, or apply to wind up the company itself. A company can also apply to the court to stop ("restrain") its creditors from applying to wind it up. It must do this within 21 days of getting the statutory demand.

How to make and serve one on a company

GOV.UK says to use statutory demand form SD 1 for a limited company, and that you do not need to send a separate letter. If you are in Scotland, there is a different form.

You must deliver ("serve") the demand by one of these methods:

• leaving it at the company's registered office (or its main place of business if it does not have one)
• giving it to the company's director, company secretary, manager or principal officer
• getting a "process server" to serve it for you (a solicitor can arrange this)

GOV.UK says you can only send it by registered post or put it through a letterbox if it cannot be delivered in person. Our guide to checking a company before you chase shows how to find a company's registered office on Companies House.

Keep records. GOV.UK says you must keep a copy of the statutory demand and anything that confirms the time and date you served it and that the debtor received it. You will need this if the demand is ignored.

If the demand is ignored

If the company does not pay or agree within 21 days, GOV.UK says you can apply to wind up a company that owes you £750 or more. You have 4 months to apply. If you are late, you need to explain why to the court named on the statutory demand.

GOV.UK lists these fees for a winding up petition:

• £352 in court fees
• £2,600 petition deposit

It says you might be able to get the fees back if the company can afford to repay them. It also says: "You might not get all or any of the money you're owed." On its page about options when you are owed money, GOV.UK adds that "the costs are high and you may not get any of your money back", and suggests getting legal advice first if you are unsure.

For individuals, including sole traders, the threshold is different: GOV.UK says you can apply to make someone bankrupt if they owe you £5,000 or more.

Is it the right step?

A statutory demand is not usually the first thing to try. These are practical points rather than legal rules:

• Start with clear reminders. Our checklist on what to do first when an invoice is overdue covers the early steps.
• Send a letter before claim. Our guide explains what a letter before claim is and when to send one.
• Know what else you can claim. Our guide to late payment interest explains the interest and compensation you may be able to add, and our late payment calculator gives a free estimate.
• Consider other routes. GOV.UK's options page also lists mediation and a court claim for money. Small businesses with a larger customer may also be able to use the Small Business Commissioner.
• Take advice if the invoice is disputed. If your customer has raised a genuine dispute about the invoice, take legal advice before using a statutory demand.

This post is general information, not legal advice about your situation.

How InvoiceCollect helps

InvoiceCollect chases limited companies and LLPs in England and Wales. It chases the debtor company for 4 weeks by email and text on working days, never more than once a day, plus a posted letter to their registered office. Interest and compensation are added where the legal conditions are met, never on a genuinely disputed invoice. Your customer pays you directly and there is no commission. We are not a law firm. Start your chase.

Sources: GOV.UK, Make and serve a statutory demand, or challenge one (full guide); GOV.UK, Dealing with your limited company's debts: responding to a statutory demand; GOV.UK, Wind up a company that owes you money (full guide); GOV.UK, Options if you're owed money.