How to recover an unpaid invoice

Chasing payments for overdue invoices can drain your energy and time away from running your business.

Your best strategy against late payments is to either use a solution where payments are taken directly from your invoices or ensure your invoices are well-formatted – follow our guide to producing invoices so that you get paid on time.

For all our efforts, at times there will always be a client or customer who either doesn’t have the funds to pay or uses a tactic of delaying payments to manage their own cash flow.

Always remember that dealing with customers also involves good judgment and if you have a five-year relationship with a client and suddenly they don’t pay, then take the time to understand what is going on before jumping in with payment demands.

In most cases, if you haven’t been paid on a late invoice then you do need to act swiftly. Follow our guide below which explains how to recover overdue invoices.

What to do when your invoice hasn’t been paid

Download a copy of this chart at the end of the page.

Before you begin to recover an unpaid invoice

Incorrect information on an invoice can cause dispute and delays during recovery:

• Check your details and facts
• Check the invoice date and payment amounts
• Check the customer’s details (name, trading name and address) are correct
• Use companies house to search the company name

If you do proceed to court recovery then you will need to prove that you followed a fair process so keep a record of all correspondence.

Note phone call times and dates and the person you spoke to

Summarise what was said and send a copy to the person you spoke to offering them opportunity to dispute what was agreed.

As a small business, you have protection and government guidelines stipulate that a customer must pay you within 30 days of receipt of your goods/service, unless you agreed other payment terms. Anything agreed for longer than 60 days must be fair to both businesses.

Invoice is submitted on 1 April with 30 day net invoice payment terms.

After 30 days, on 30 April, payment is due.

After two days, send an email reminder.

• Make sure you’re speaking to the right person and get a contact name for accounts.
• Offer a friendly reminder and ask directly if they received the original invoice.
• Attach a copy of the original invoice.

Email date: 2 May 2018

———————————————————–

Email subject: Invoice reminder

———————————————————–

Hi [customer],

I hope you are well.

A reminder to let you know that your invoice dated

1 April 2018 is due for payment.

I’ve attached a copy for your convenience.

Kind regards,

[Your name]

———————————————————–

After 7 days:

Send another email reminder.

• Be friendly and ask directly if there is any reason it hasn’t been paid because of an issue with amounts/services outlined in the invoice.

Email date: 9 May 2018

———————————————————–

Email subject: Invoice reminder, follow up

———————————————————-

Hi [customer]

Following on from my email dated 2 May, I wanted to

remind you that payment is overdue on our invoice dated

1 April 2018.

Can you let me know if there is any issue with the invoice

that you would like to raise.

Kind regards,

[Your name]

———————————————————-

After 24 hours:

Make a phone call.

• Be friendly, and ask directly if they received the previous two emails.
• Ask directly when payment will be made.

———————————————————–

Date of phone call: 10 May 2018

———————————————————–

Hello [customer name]

Hope you are well.

I’m calling about our invoice dated 1 April 2018. Did you

receive our email yesterday?

Are there any issues with the invoice that you want to raise?

You can confirm that you agree with the amount?

Can you let me know when you think you can make the

payment?

Thanks [customer name], much appreciated. Bye.

———————————————————–

Summarise what was said and send an immediate email as a record so that they have the option to dispute what was said and agreed within the call.

After 7 days:

Another phone call.

• Be fair and reasonable and ask directly why payment has not been made.
• Ask when payment is going to be made.

———————————————————–

Date of phone call: 17 May 2018

———————————————————-

Hello [customer name]

How are things with you?

I’m calling to follow up about our invoice dated 1 April 2018

and our call last week.

Is there any reason why the invoice hasn’t been paid?

Can you agree to make the payment by [insert a date 5 days

from now] 22 May?

Thank you [customer name]. Bye.

———————————————————-

Summarise what was said and send an immediate email as a record so that they have the option to dispute what was said and agreed within the call.

After 7 days:

Send a formal letter from your business.

Outline that interest is being applied to the debt and accruing and that the sooner they pay the invoice the less they will have to pay.

---

Date of letter: 24 May 2018

---

Dear [customer name]

I’m writing to you regarding our invoice dated 1 April 2018,

for the sum of £1,000 for brochure design services.

I sent reminders to you by email on 2 May and 9

May. I have also spoken to you on the phone on 10 May

and 17 May to ask if there are any issues with the

invoice and if there is any reason why it has not been paid.

You agreed to pay the invoice by 22 May [or the date agreed].

You have not disputed the invoice nor have you disputed the

amount payable.

We are entitled to charge interest on any overdue amounts

and this will now accrue at a rate of £0.23 per day from the

date that payment was due until it is settled in full.

The total amount payable as of today is £1,005.52.

Please make payment in full immediately to avoid any further action.

Regards,

[Your name]

---

Charge interest on a late commercial payment

Under government legislation, you can claim interest for your invoice debt at 8% above base rate, applied from the date the debt became due.

To calculate the daily rate of interest being accrued:

Work out the annual interest:

[The amount you are claiming] x [8 + current base rate / 100]

£1,000 x 0.085 = £85 per year

Work out the daily interest:

[yearly interest] / 365

85 / 365 = 0.23p per day

For an invoice overdue by 30 days this would be: £6.90

After 14 days:

Send a solicitor’s warning letter OR another formal letter directly from yourself that includes:

• The date of the original invoice
• How much they owe
• What the invoice was for
• The contact name of the person that agreed to the work or approved the goods
• Your payment terms agreed
• Make a final request for payment

Inform the customer that you will be issuing a statutory demand OR proceeding to Court and filing a claim against them for the amount overdue plus any interest if they do not make payment within 7 days.

Make sure you can prove the letter was received by using a signed for delivery service.

Seek legal advice on how to structure this letter.

At this stage it’s assumed that the relationship between your client/customer and yourself is at a non-recoverable stage and unlikely to result in more business from them.

If you do continue to work with them after this process, it’s advised that payment terms revert to all invoices being paid in advance (PIA).

The three options for debt recovery for a small business or individual

Mediation

At the first stage of any dispute and fall out it’s always best to try and recover the situation by using a mediation approach.

Sitting down together in a room and talking may uncover simple miscommunication or misunderstanding. Or, even embarrassment on the customer’s part for a situation that has spiralled out of control.

Potentially a cheaper cost than starting legal proceedings, mediation is a small fee and may help recover your unpaid debt.

You can find a list of mediators and fees in your local area with the online directory from the Ministry of Justice here.

Send a statutory demand

A formal letter that demands for payment will get the attention of your client who hasn’t paid their bill.

The customer then has 21 days to respond.

If the letter is ignored or they don’t pay you can apply to a court to make them bankrupt (debts over £5,000) or have their company wound up (debts over £750).

You can issue the letter yourself but you must understand the strict criteria to have it upheld.

The process and forms are clearly outlined here.

We advise seeking legal advice on how best to structure a statutory demand letter.

Court action

If the invoice hasn’t been disputed at any stage in your communication you can take court action. There is a simple online process for making claims under £100,000.

Before claiming, be sure that you can prove there has been enough communication between yourself and your customer so that they understand what your claim is for.

The official protocol from the Justice Department states that both parties have exchanged sufficient information to:

(a) understand each other’s position;

(b) make decisions about how to proceed;

(c) try to settle the issues without proceedings;

(d) consider a form of Alternative Dispute Resolution (ADR) to assist with settlement;

(e) support the efficient management of those proceedings; and

(f) reduce the costs of resolving the dispute.

You can find a comprehensive guide for making a claim here.

You may be required to attend court if your customer disputes the claim so ensure that you follow all the stages outlined in the guide for claimants here and that all information is correct.

An incorrect name or address on an invoice can be enough to have a claim halted with you needing to reapply.

You can submit your claim here at Money Claim Online.

Once you have filed your claim your customer has 14 days to respond.

Employ a debt collection or purchase agency

As a last resort, you can sell the debt to a specialist agency to recover a percentage of the invoice. Although, this could only be pennies on the pound. You can add the cost of the debt recovery to your claim.

By using a third-party service, this does mean that any relationship with your customer will most likely be irretrievable.

If you do approach a third party to recover the debt remember:

• Only employ a reputable firm as they are representing your name and brand.
• Ask for references and follow them up.
• Do NOT pay upfront or registration fees.
• Only agree a no-collection-no-fee basis.
• Ask for their terms and conditions.
• Only use an agency that is registered with the Financial Conduct Authority.
• Do not employ anyone where you suspect a use of ‘heavy tactics’.

Final thoughts

Getting paid on time can be as simple as making sure the content and layout of your invoices is clear and includes all the necessary information. Read our guide on what to include on your invoice and make sure that you get paid without hassle every time.

As a handy reference guide you can download a copy of the “What to do when your invoice hasn’t been paid” flowchart.

To help manage your time better you can use accounting software which can send professional invoices for you as you process orders instead of the time-consuming process of manually completing and sending your invoices.

Leaving you more time to focus on what you do best: build your business.