What to do if a client fails to pay an invoice

March 24 2016, 0 Comments

This can can be one of the most distressing instances you can encounter whilst running a small business.

Whether you are a Freelancer, Sole Trader or even a Limited Company being paid for your services promptly and on time is not only polite but vital for the cash flow of your business.

Act before the job is completed

There are several ways in which you can ensure you are paid for your services once they are completed which we shall explore now.

Stipulate payment terms in your initial agreement with the customer

This is one of the simplest and easiest precautions you can take to ensure payment is received.

If giving a quote or surveying a job, ensure that the quote you give is in writing either via post or preferably by email. This will give you a reference to fall back on should the worst happen.

You can even state terms of payment such as jobs valued over a certain amount require a down payment before work commences, in most cases it is best to be as transparent with your customer as possible.

Send the your invoice promptly and again stipulate payment terms

Once the job has been accepted by the client send your invoice as promptly as possible, in most instances of late payment it can be a simple issue of the invoice being lost or misplaced. Therefore send your invoice electronically to avoid this issue occurring.

Any good accounting software package will allow you to customise your invoices and it is important to again state your terms of payment. For example give a deadline of payment in the terms at the bottom of your invoice. Therefore it would be hard for any customer to argue they were not made aware of your business terms.

Consider a business terms and conditions contract, signed along with a letter of engagement

If you have experienced this scenario before or your cash flow is such that any late payment would be disastrous to your business, you might like to consider a business terms and conditions contract.

A standard contract and letter of engagement can be drawn up by a solicitor for a fee and the draft can be used with multiple customers.  Once signed this will create a legally binding contract between yourself and the customer and will provide security for you both.

How to react when payment has not been received

It is vital to at all times remain polite yet firm, you may endanger yourself if the customer claims you have harassed them or that you have been abusive.

It may be best to send an email or letter on the due date to the customer and politely ask for them to make the payment as soon as possible.

Then wait for a couple of days to allow them a fair amount of time to make payment. As soon as you have decided that they will not pay willingly there are several courses of action you can take.

Send an ultimatum

Send the customer a letter or email stating when the payment date expired and that as per the terms of business set forward in your initial invoice or contract you are expecting payment to be made immediately.

State a date where if payment is not made you will be seeking legal counsel and moving forward with the correct course of action. Remember to remain polite and courteous, it is vital to not appear threatening as this may damage your claim if legal action must be taken.

Charge interest on a late payment

If the payment is being charged to a business it is possible to charge interest on any late payments extending over 30 days.

The amount of interest you can charge is 8% + The Bank of England standard base rate for business to business transactions. You can also claim late debt recovery costs on top of the interest charged. Gov.co.uk have more information here.

Seek a solicitors help

The best course of action will be to refer to a solicitor who practises in business law, they may refer you to a debt collection agency or may advise you on how to make a claim against the customer.

Remember that 30% of the amount owed will go to the debt collection agency so it may be best to follow a different course of action depending on the amount owed.

Consider a mediator

This process involves getting a third party mediator to work on an agreement between both parties, the amount charged depends on the amount of money being negotiated.

The cost can be as little as £50 + VAT for each party and may be the simplest way of resolving any issue you have had with your customer. Remember to put forward all documentation you have which can aid your claim. Gov.co.uk recommend this service to find a civil mediator.

Consider a court claim

Previously known as the small claims court this process should resolve any issue you are having however it can be costly.

If the client is found to be in the wrong they may be forced to pay both the amount owed and any court fees incurred. However you will have to pay a court fee to initiate the claim and a further fee if a hearing is called, there is a possibility that the court may see it fit that court fees are not paid by the customer so be prepared to lose the fees you put into the claim.

Remember to again bring forward all documentation that can aid your claim. More information can be found on the gov.co.uk website here.


*All articles are correct at the time of publication. Please see this link for more information regarding current VAT, Tax and MTD requirements with HMRC. It’s always advisable to check legislations and obligations with the relevant governing body. https://www.accountz.com/pages/making-tax-digital-for-vat