There’s a lot to think about when you’re a business director and chasing customers isn’t the best use of your time. In this blog, we’re covering – customer not paying invoice: what should I do?
I sent an invoice and they haven’t paid
Businesses are required to send an invoice (payment request) for completed work or products that have been delivered.
As an established business, it’s important to have a streamlined process for collecting payments from customers. Many companies use software to help with this.
Unfortunately, even when you have a streamlined and efficient invoicing process, there are instances when you might not get paid on time. This is because it’s up to the client to pay the money that you are owed.
When you send an invoice to a client, you should always specify the date it needs to be paid. This can help to avoid any confusion and gives you a bit more stability, as you know you are due to be paid by that date.
The best advice would be to stay calm and assess your options carefully before making a decision about your unpaid invoice.
What can you do when a client doesn’t pay?
The first thing you should do if your client doesn’t pay is send a final request for payment. Within this notice, you should include the exact figure they owe you and the original date it was due. You should also include a new date, which is seven days later. This gives them plenty of time to make the payment successfully. You can decide how much time you give them to pay.
When you send this notice, you also need to include details of the next steps you would need to take if payment is still not made after seven days (or the number you specified). Common next steps might include taking them to court and filing a claim against them.
You should let them know that the process would be much easier and straightforward if they pay the invoice, and therefore do not require legal proceedings to take place.
How much money are you owed?
It’s not uncommon for businesses to chase payments so far that they end up in court proceedings.
I am owed less than £10,000
If you are owed less than £10,000, you can submit a claim to the Small Claims Court (in England and Wales).
While this can be stressful, it might be the only way to get the money you owe. If the case is successful and rules in your favour, then the court fees will fall to the person or company that owed you money. They will also be responsible for any interest that is incurred during the process.
I am owed more than £750
Here’s another option if the amount you are owed is greater than £750. This advice is for company debts only. Companies can use statutory demands to request payment from debtors. These demands state that any money owed must be paid within 21 days of the request.
If the money remains unpaid after 21 days, then the court can issue the company with a winding-up petition, which usually ends with compulsory liquidation. This means that the company will be forced to close, and the director or directors will have very little control over the process, including time frames and the insolvency practitioner who is appointed to handle the case.
If the debtor is an individual and owes more than £5,000, then you may be able to file for bankruptcy.
While this might sound like a great option, businesses also need to consider the costs of using this method. You might want to try other, less expensive options before you use this one.
Additionally, it’s understandable that many directors want to handle things more amicably, so make sure you consider your options carefully. You may even be able to agree on a payment plan with your debtor, where full payment is made by a certain date. However, this approach isn’t right for every business – be cautious and ensure it aligns with your needs. Always speak to a professional before you do this.
Some limited company directors might look for help from a debt collection agency, which may be able to recover a late fee. Some agencies work on a no-win-no-fee basis, while others may charge upfront. Make sure to choose a reputable firm and understand their terms before proceeding.
What are the costs of taking legal action?
The exact costs of taking legal action heavily depend on your situation. Here are some of the factors that can impact the costs involved.
- The actions of your debtor – if they pay sooner, you won’t need to take further court action
- If the court rules in your favour or not – if they do, the debts fall to the debtor, but if you lose, you will need to pay court fees
- The amount of money you’re trying to recover from the unpaid invoice – the higher the amount, the higher the court fees are likely to be
- How much support you require from others, eg solicitors – it’s always recommended that you seek professional advice in these circumstances
How can I reduce the risks in the future?
It can be extremely stressful dealing with a late payment, especially as a small business owner who may be depending on it for cash flow.
- Some directors find it helpful to ask for payment up front
- It can also help to have clear payment terms
What should I do?
The best course of action in the beginning is to send a final demand letter. This shows that you are aware of the late payment and also gives you a chance to outline the next steps. It’s also fair, as you are allowing the debtor more time to pay.
If, after this point, you still haven’t received the outstanding payment, then it’s crucial that you seek professional advice before taking further steps. Initiating court proceedings can be expensive if you end up having to foot the bill.
Additionally, it’s vital that you ensure all information you provide is consistent and accurate. Otherwise, you might end up undermining your own case and putting yourself at risk.
We’re here to help at 1st Business Rescue. We can offer honest and professional advice for business insolvency and rescue. Contact us today.
Justin Barker
I’m Justin Barker, the Managing Director at 1st Business Rescue. I have over 25 years of experience providing insolvency advice to business owners.
I understand how challenging it can be when dealing with financial difficulties within your business. It’s easy to ignore the problem and hope that it disappears, but this is often the worst thing you can do. Our dedicated team is here to provide honest, valuable advice to help UK directors deal with their personal situations in the most appropriate way.
No case or circumstance is the same, but I can guarantee that I am there to give you the best advice.
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