Sell the debt or collect it? Comparison for creditors | EXRECEIVABLES

You have an unpaid invoice on your desk and you are weighing what to do. Two routes are open: sell the debt and have cash in your account within days, or have it collected professionally and wait for full recovery. Both routes are legitimate — what is right depends on what you need from the situation. At EXRECEIVABLES we do both, so we can give you an even-handed view of when each makes sense.

This comparison gives you: a decision matrix, realistic purchase prices by debt type in the UK market, our purchase criteria, and when collection actually pays better than a quick sale.

Decision matrix: sale vs collection

| Criterion | Sale of debt | Collection / litigation | |---|---|---| | Speed | Cash within days | Months to years | | Recovery | 10 – 95 % of face value (depends on quality) | Full sum plus interest and costs (if successful) | | Risk | None — risk passes to the buyer | You carry the risk of non-recovery | | Suitability by debtor | Works even with problematic debtors | Solvent debtor = higher recovery | | Documentation | Documented debt required | Solid documentation essential | | Tax impact | Loss crystallised immediately | Write-off only on proven bad debt | | Your time commitment | One contract, then done | Continuing involvement, possible court process | | Debtor's consent | Not required (assignment under s.136 LPA 1925) | Not required |

Rule of thumb: speed and certainty cost you money; waiting and active engagement earn you money (if it works out). Which side of the equation weighs more depends on the specific case.

Three routes that are often confused: debt sale, debt collection, and invoice finance

In the UK market, three tools are commonly muddled:

Debt sale (debt purchase) is the outright transfer of an unpaid receivable by assignment under section 136 of the Law of Property Act 1925. The buyer becomes the new creditor and takes the risk. You get the purchase price immediately and are out of the matter. The discount against face value reflects risk, recovery cost, and time value of money.

Debt collection (often called "debt recovery" or "receivables management") is the engagement of a third party — typically a debt collection agency, sometimes a solicitor — to pursue the debt on your behalf. You remain the creditor. The agency works on a success basis or against an agreed fee; collection costs are commonly passed to the debtor as recovery costs (statutory under the Late Payment of Commercial Debts (Interest) Act 1998 for B2B debts, plus reasonable additional recovery costs). On full recovery you receive 100% of the principal.

Invoice finance (factoring or invoice discounting) is the funding of invoices not yet overdue out of your operating book. A factor advances most of the invoice value (typically 80 – 90%) on the day you issue it, charges a discount fee, and either collects the invoice itself (factoring) or leaves you to collect (invoice discounting). Invoice finance is a cash-flow product and is generally cost-effective only for businesses with regular invoice flow above £100,000 per month. It is not the topic of this article.

This article compares debt sale with debt collection / litigation.

The legal basis of debt sale in English law

A debt sale is a legal assignment under section 136 of the Law of Property Act 1925. The assignor (you) transfers the debt to the assignee (us), who takes over the right to enforce it. Section 136 requires three things for a fully legal assignment: it must be absolute (not merely by way of charge or security), it must be in writing and signed by the assignor, and express notice in writing must be given to the debtor. Without all three, the assignment may still be valid in equity — but the assignee will have to join the original creditor in any subsequent action.

The debtor's consent is not required. Two specific UK-market points to be aware of:

Anti-assignment clauses. Unlike German law (which has a B2B override at § 354a HGB), English law generally gives effect to properly drafted anti-assignment clauses. However, the Business Contract Terms (Assignment of Receivables) Regulations 2018 void anti-assignment terms in many small-business contracts entered into on or after 31 December 2018 — making the assignment effective even where the contract appears to forbid it. The Regulations apply to contracts where the assignor is not a "large enterprise" and the assignment is of a receivable arising under a contract for the supply of goods, services or intangible assets.

Notice to the debtor. Notice under section 136 must be in writing, addressed to the debtor, and clearly identify the assignment. Once the debtor has notice, any payment they then make to the original creditor does not discharge the debt — the original creditor receives those funds on trust for the new creditor. Until notice is given, a payment to the original creditor does discharge the debt as against the assignee, who must then look to the original creditor for the money.

When selling makes sense

You need cash quickly. A sale completes within days. You do not wait for letters before action, claim issue, judgment, enforcement. With collection / litigation, we are talking about months — often six months to first money, occasionally one to two years in contested cases.

You want to be rid of the risk. Once the assignment is signed, the debtor is no longer your concern. Whether they pay, how much they pay, and when, is the buyer's problem.

You have many small receivables. Pursuing small individual debts is administratively unprofitable. A bulk sale of the portfolio is often the only economically rational route.

The debtor is in difficulty. They have existing CCJs against them, they are subject to enforcement action, they are not communicating, they are dissipating assets, they are on the edge of insolvency. Collection becomes a long shot. A sale at least crystallises some value now.

You do not want the psychological burden. For many sole traders and small businesses, chasing a debtor is genuinely stressful — particularly when the debtor is known personally. A sale removes that burden in a single transaction.

The price of speed and certainty is the discount. The purchase price is always below face value — the buyer is pricing in risk, recovery cost, and the time value of money.

Realistic UK market prices

The UK debt purchase market follows broadly the same logic as other European markets, with a few specifically British wrinkles:

Fresh, undisputed B2B invoice, creditworthy debtor: 80 – 95 % of face value. A debtor with clean credit-bureau records, the invoice is recent (1 – 3 months overdue), the underlying contract and delivery evidence are clean, the debtor is a recognised commercial entity with available assets. Risk to the buyer is low; price is high.

Overdue debt with documentation in order: 30 – 60 % of face value. Several months overdue, multiple reminders sent, debtor has a moderate credit profile, no actual default events yet. The bulk of mid-market creditor cases sit here.

Older or weakly documented debt: 10 – 30 % of face value. Debt is 1 – 3 years old, the debtor has prior CCJs or insolvency markers, documentation is patchy.

Titled (judgment) debt that has not been enforced: 10 – 30 % of face value. This is the British market paradox that often surprises creditors: an unpaid CCJ is typically worth less than a comparable untitled debt, because the existence of an unenforced judgment signals to the market that collection has been tried and failed. A CCJ against a solvent debtor where enforcement simply has not been pursued is a different matter and can command better prices.

Debt against an insolvent debtor (in IVA, bankruptcy, administration or liquidation): typically below 10 %, often not buyable. The buyer's recovery is capped at the insolvency dividend. Pricing reflects the expected dividend, which for unsecured creditors in formal insolvency is typically very low. Often the receivable cannot be sold at all because the dividend is too uncertain.

The expectation that an unsecured overdue receivable can be sold for 80% is unrealistic. A buyer paying that would lose money on the position.

When collection makes sense

The debtor is solvent. If the debtor has assets, income, or at the very least unencumbered bank accounts, the prospects of recovery are high. Selling at a discount in that situation gives up money for no good reason.

The documentation is clean and undisputed. Contract, purchase order, invoice, delivery note, correspondence — all present and consistent. A debtor acknowledgment is a bonus. In such cases, a well-drafted letter before action from a solicitor often produces payment without further escalation.

The debt is substantial. With larger receivables, the absolute difference between purchase price and recovered amount matters in money terms. A 40% discount on £50,000 is a different proposition from a 40% discount on £500.

You have time. If cash flow is not under pressure and you can wait six to twelve months, collection or litigation will, more often than not, deliver more.

The debtor will engage and settle. If the debtor is willing to enter into a structured settlement — recorded in a settlement deed or, if proceedings have been started, in a Tomlin order — you can secure substantially more than a sale would yield, with manageable risk.

The debt is undisputed and above the threshold. A statutory demand can produce payment in 21 days where the debtor has the means but is unwilling.

> Watch the regulatory regime. Debt collection in the UK is regulated. For B2C debts owed by consumers to a business, the collector must usually be authorised by the Financial Conduct Authority (FCA) under Part 4A of the Financial Services and Markets Act 2000 and must comply with the FCA's Consumer Credit sourcebook (CONC). For pure B2B debts (between commercial entities), FCA authorisation is not generally required, but the General Data Protection Regulation and the Consumer Rights Act 1977 still apply to processes that involve individuals. Always check that whichever collector you engage is operating within the right regulatory frame for the debt in question.

The orthodox litigation route in outline

A typical English claim runs as follows:

1. Pre-action correspondence. Letter before action; Pre-Action Protocol for Debt Claims for individual / sole-trader debtors. 2. Claim issued. Money Claim Online (MCOL) for straightforward money claims; N1 claim form for more complex matters. Court fee is set on a sliding scale of the claim value. 3. Defendant's response. Acknowledge service within 14 days; defence within 28 days. If no response, the claimant can apply for default judgment — a court order without a hearing. 4. Track allocation. Small Claims Track (up to £10,000), Fast Track (£10,000 – £25,000), or Multi-Track (above £25,000). Above £100,000 you can issue directly in the High Court. 5. Trial. If defended, the matter proceeds to trial. Costs recovery depends on track. 6. Judgment. If you win, a CCJ is entered. 7. Enforcement. Warrant of control (County Court bailiffs), writ of control (High Court Enforcement Officers — generally more effective for commercial debts), charging order over property under the Charging Orders Act 1979, attachment of earnings, third party debt order under CPR Part 72, or statutory demand and insolvency proceedings.

In undefended cases (about 75% of money claims), the route from claim issue to default judgment is typically four to eight weeks. From judgment to recovered money depends entirely on which enforcement route is used and how cooperative the debtor is.

What we buy and what we do not

For a balanced comparison: not every receivable can be purchased. Our criteria:

What we buy:

• Face value £1,000 – £500,000 (larger cases case by case)
• Debts up to 3 years old (exceptions for well-documented debts close to limitation)
• Debts against sole traders, companies, partnerships, and individuals
• Debts arising from invoices, contracts, loans, rent, hire-purchase, promissory notes
• Titled debts with default judgment or judgment after trial

What we buy with caution:

• Debts against debtors in formal insolvency proceedings (only where the prospective dividend is sufficient)
• Debts with incomplete documentation (we will sometimes rebuild the position, but at a lower price)
• Debts against thinly-resourced debtors without any security

What we do not buy:

• Debts subject to a properly drafted and enforceable anti-assignment clause (the legal barrier — outside the carve-out under the 2018 Regulations)
• Debts of a personal nature (maintenance, certain tort claims)
• Debts without any documentary basis
• Debts arising from claims the courts would not enforce (illegality)

What we do at EXRECEIVABLES

When you bring us a debt, we do not push you automatically to either the sale or the litigation route. We assess it first: documentation, limitation position, any anti-assignment clause, and the debtor's profile (Companies House filings, Register of Judgments, credit bureau data, insolvency registers).

On that basis we give you two numbers: the price at which we will buy the debt (immediate, no risk), and the realistic recovery we expect from collection or litigation through us (if you choose that route). You then decide.

In practice it is very common that:

• A client comes thinking the sale is the right answer, but on review we recommend collection because the debtor will pay.
• A client thinks they can collect themselves, but our review identifies a structural problem (weak documentation, approaching limitation, anti-assignment clause) and the sale is substantially better than a likely-to-lose claim.
• A client has multiple debts against one debtor — and creditor-side debt consolidation is the right structure, allowing us to act on the lot together.

What to watch for

Anti-assignment clauses. More common than people think. Check the underlying contract before sale. Note the carve-out under the 2018 Regulations for small-business contracts entered into on or after 31 December 2018.

Limitation. A debt that is close to the six-year limitation horizon (twelve years for a deed) has a sharply reduced value in both sale and collection. Acknowledgments in writing (signed emails count) or part-payments by the debtor restart the clock. Time matters.

A clean assignment agreement. A badly drafted assignment can leave you having to refund the purchase price if the debt turns out to be partly paid, non-existent, or disputed. Section 136 of the Law of Property Act 1925 sets the basic framework; the warranty for existence is default but the warranty for solvency is not — careful drafting matters.

Proper notice to the debtor. Until the debtor has written notice of the assignment, payment to the original creditor discharges the debt as against the assignee. Section 196 of the Law of Property Act 1925 sets out service rules. We handle this for you.

Tax position. A sale at a loss crystallises that loss for tax purposes. A collection write-off only occurs when the debt is genuinely bad. There may also be VAT implications on bad debt relief (s.36 VAT Act 1994 and supporting regulations). Speak to your accountant before sale or write-off — particularly for VAT-rated supplies.

Summary: which route, when

Sell if: you need cash quickly, the debtor is problematic, the debt is contested, you do not want the risk, you have many small receivables, you do not want the burden.

Collect if: the debtor is solvent, the documentation is clean, the debt is substantial, you have time, the debtor will engage and settle.

Use a statutory demand if: the debt is undisputed and above the threshold, the debtor is solvent but unwilling, you need fast results.

Unsure? Send the receivable to us for a free, no-obligation review. Within two working days we will give you both a purchase offer and a realistic collection prognosis. Then you decide.

Get in touch.

Frequently asked questions

How much will I get for selling my debt? For a fresh undisputed B2B invoice against a creditworthy debtor, 80 – 95 % of face value. For an older overdue debt with documentation, 30 – 60 %. For an old or weakly documented debt, 10 – 30 %. For a titled debt that has not been enforced, 10 – 30 % (often less than a comparable untitled debt — the unenforced judgment signals difficulty). For debts against insolvent debtors, typically below 10 %. We give a concrete offer after reviewing the documentation and the debtor profile.

Can I sell a debt I am already pursuing in court? Yes. Even debts under active litigation or with an unenforced judgment can be sold. The transfer is documented by an assignment and notified to the court / enforcement agent. The price will normally be lower — the fact that recovery has been attempted unsuccessfully is a market signal.

Do I need the debtor's consent to assign the debt? Generally no. Section 136 of the Law of Property Act 1925 sets out the requirements for a legal assignment, which do not include the debtor's consent. Express written notice to the debtor is required. Exceptions: where the contract contains a properly drafted anti-assignment clause not caught by the 2018 Regulations, and where the receivable is of a personal nature.

What is the Business Contract Terms (Assignment of Receivables) Regulations 2018? A regulation that voids anti-assignment terms in many small-business contracts entered into on or after 31 December 2018. It applies to contracts for the supply of goods, services or intangible assets where the assignor is not a "large enterprise". The effect is to make the assignment effective even where the contract contains a no-assignment clause — a major change in UK B2B receivables practice.

How long does the sale process take? From submission of the supporting documentation to money in your account: typically 3 – 10 working days. It depends on the completeness of the documentation, the complexity of the case, and the depth of debtor due diligence needed. Straightforward, well-documented cases can complete in 3 days.

How long does litigation take? Pre-action correspondence: 1 – 3 months. Money Claim Online claim issue to default judgment (where the debtor does not respond): 4 – 8 weeks. Where the debtor defends: 6 – 18 months to trial, plus appeal time if used. Subsequent enforcement: another 3 – 18 months depending on the debtor's situation and the enforcement route chosen. A statutory demand can shortcut all of this for undisputed debts.

What if the debtor pays the original creditor after the debt is sold? If the debtor has been given written notice of the assignment under section 136 of the Law of Property Act 1925, payment to the original creditor does not discharge the debt — the debtor must pay again to the new creditor, and may have to chase the original creditor for the misdirected payment. If the debtor has not had notice, payment to the original creditor does discharge the debt as against the assignee, who must then look to the original creditor for the proceeds. That is why prompt and clear notice is essential — we handle it for you.

What is the difference between debt sale and invoice finance / factoring? Debt sale targets individual overdue receivables. The buyer takes them outright at a discount. Invoice finance / factoring funds your operating receivables — the invoices you issue in the ordinary course of business that are not yet due — by way of an advance against face value plus a discount fee. Factoring becomes economically interesting at scale (typically £100,000+ per month of invoice flow) and is a cash-flow product, not an overdue-debt product. The two are not really substitutes.