The Limitations Act 1980.
Helping business understand their rights when chasing Invoices.
The Limitations Act 1980 outlines the time limit within which a creditor can chase a debtor for outstanding debts within England and Wales. The Act is only enforceable when no prior contact has been made between the creditor and the debtor within the given time period.
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Under the Limitations Act 1980 Creditors have up to 6 years to raise an invoice for goods and/or services rendered providing they have proof of work. A business customer (i.e. the debtor) cannot therefore refuse to pay a legitimate invoice simply because a few years may have passed although it is of course not advised to leave sending invoices this late. Ideally all invoices should be sent immediately after the completion of work (using the 14 day rule).
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​Despite being given 6 years to raise an invoice, this time limit can possibly be extended depending on the type of debt at the courts discretion or if the debtor admits to owing the money or made a partial payment towards the outstanding debt as this would be an admittance of liability.
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Most invoices and debts fall under the definition of a 'Simple Contract' in the Limitation Act, meaning you have six years to commence legal action to recover the debt in England and Wales if no prior contact has been made. However if a creditor approaches the debtor after 6 years then the outstanding claim may be “statute barred” under The Limitations Act 1980 meaning that whilst the whole debt or remaining debt still effectively exists and is due, it cannot be pursued and various legal routes are restricted.
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When does the 6 year period begin?
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For simple contracts the Act states that the limitation period will expire six years after the 'cause of action'. A 'cause of action' is defined when a breach of your agreement has occurred.
​For example, this could be when:
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The payment terms of an invoice have passed without a payment being made i.e. after 7, 30, 45 or 60 day payment terms.
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A scheduled payment is missed and becomes overdue i.e. a business customer misses an instalment causing the whole balance i.e. debt to become due.
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An agreement or contract has been breached by an event
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The date of the last correspondence with the debtor discussing payment i.e. if there is an admittance of debt during the 6 year period then this effectively grants you another 6 years to chase the debt providing there is evidence of correspondence.
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If during this time you have successfully enforced a CCJ against a debtor then the 6 year period may not apply or provide your business with another 6 years to reclaim the outstanding debts.
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Chasing a debt post “statute barred” is not advisable as it could possibly lead to a harassment claim against your company under the Administration of Justice Act 1970. And a business cannot issue a CCJ against a debtor once the 6 year "statute barred" has been enforced.