Recovering debt from a Sole Trader in 4 basic steps

Recovering debt from a Sole Trader

Recovering debt from a sole trader is not straight forward. Very often a sole trader maybe using a trading name. They do not have limited liability as a Limited company does and therefore can be treated differently.

Debt Recovery is a common challenge that many businesses face on a regular basis in the UK. It can be particularly challenging when trying to recover a debt from a sole trader. Sole traders are individuals who are trading on their own, and they are not registered as a company.

Very often, businesses have supplied sole traders as their trading name. Sole traders can operate in a variety of sectors from self employed tradesmen to food premises owners. A debt owed by a sole trader is effectively a personal debt as they are personally liable.

If a sole trader has been trading from a premises and it has closed owing you money, you will often need to trace the sole trader. This is not an easy task at all especially if you do not have their full legal name. Simply have their trading name such as Acme Cafe is not enough. You will need their full legal name and other personal details can be helpful.

This kind of scenario is especially prevalent in the food supply sector. Cafe and food outlet owners shut up shop then leave behind their unpaid debts. It is always recommended you get some sort of proof of ID if you are providing goods and services to a sole trader to cover yourself.

What is a sole trader?

A sole trader is a self-employed person who is the sole owner of a business. The individual is entitled to all business profits of the business after tax has been paid and is personally responsible for all debt it incurs.

While sole traders are often a one-man business organisation, it’s important to remember that the term ‘sole trader’ refers to the structure of the business, not the number of employees. While a sole trader trades alone and is self-employed, it doesn’t mean he or she operates the business alone.

How to recover debt from a Sole Trader

If a sole trader owes you money, there are basic steps you can take to recover a debt from a sole trader yourself. Here are some basic advisory tips to set you on your way.

 Step 1: Send a Letter Before Action

Before taking any legal recovery action, it is important to send a letter before action to the sole trader. This letter should outline the amount owed, the reason for the debt, and set a deadline for payment. It is important to keep this letter professional and polite, as this can help to maintain a good working relationship with the sole trader.

Step 2: Telephone the sole trader

If the sole trader does not provides no response to a letter before action then call them. Picking up the phone and actually engaging with them directly may solve the problem quicker than waiting for a response.

It is important to always keep a professional and polite tone throughout as this can help to maintain a good working relationship with the sole trader.

Step 3: Seek Professional advice

If your initial attempts to engage with the sole trader have failed, it is worth speaking with a Professional to get advice on your options.

Step 4: Positive Action will help you recover your money

If all reasonable attempts to recover a debt from a sole trader have been unsuccessful, take action. It has already taken up too much of your time and no doubt caused stress. Chasing down payment from a sole trader can be a frustrating exercise that may bear no results.

Speak to Federal Management

Our Expert Debt Recovery advisers are on hand to answer any queries you may have. We can help trace Business owners who have left their premises owing you money. We have helped Businesses thousands of debts that were owed to them by sole traders. It really can pay to work with Professionals.

Recovering debt from a sole trader in the UK can be a challenging process. However, by following the steps outlined above, you can help to increase your chances of success.

Limited Company versus Sole Trader

From a Debt Collections perspective, it is more challenging to recover a debt from a sole trader. Limited Companies have registered offices and greater transparency in terms of their financial standing. They are more accountable to ensure legal information is readily available. There are man differences between a Limited Company and a sole trader.

Probably the biggest factor in a debt recovery sense is that a Limited Company has Limited Liability. A sole trader can be pursued personally for any debt to their home address. If you are unsure if your customer is a Limited Company, you can easily check on Companies House for real time records of their standing.