Person signing a cheque

Contents

  1. 1. How to deal with an unpaid invoice

How to deal with an unpaid invoice

August 23, 2021
Running your own company can be incredibly rewarding, but it comes with a great deal of pressure and stress too. One of the most stressful situations you could find yourself in is having to chase a client for payment – which most freelancers, sole traders and small business owners will have to do at some point. A study conducted by Tide in 2020 found that UK small business are chasing a staggering £50bn in late payments at any time. Commenting on the study, Tide PR and Communications Manager Sarah Penney said "Small businesses are, on average, chasing up five outstanding invoices every day, wasting over 1.5 hours of their precious time per day. Considering business owners are already stretched, managing everything from the day to day running of their business, to trying to grow, to banking and admin, spending time chasing payments that should already have been made is a huge waste of their time, which should really be unnecessary."While discussing money is often awkward and it can be hard not to take it personally when someone doesn’t pay you for the goods or services you’ve provided, there are some things you can do to make chasing an overdue payment a less painful process.

How to deal with an unpaid invoice

Remember that it’s important to remain professional and polite when dealing with a client who’s missed a payment. After all, you’ve got your company’s reputation to think about and it’s not a good idea to burn your bridges if you don’t have to.Thankfully, there is plenty you can do to deal with payment issues while keeping a healthy relationship with your client. 

Why do clients miss payments?

Before you start chasing an unpaid invoice, it’s helpful to understand the reason why a client has missed a payment. Having a better understanding of their situation means you can deal with the problem in a more appropriate way.It’s a sad truth that some clients are just unethical and never had any intention of paying for goods and services. So with new clients, it’s a good idea to do your research and ask them lots of questions to make sure they’re trustworthy and reliable. Here are some of the other things you can do to spot the non-paying clients early on:
    Take clients by referral onlyUse a credit agency to check their debtsAsk for a deposit or half your fee upfrontGet them to sign a contractCheck when they pay their suppliers (if they’re a large company)
If they’re reluctant to agree to any of your conditions, take it as a red flag and think twice before carrying out any work for them.There may, however, be a genuine reason for a client’s missed payment. We’ve listed some of the most common reasons below.

Accounting and staffing issues

Disorganised and over-complicated accounting processes can be to blame for missed payments. If, for example, there are a number of different steps your client needs to take before a payment can be made (like having it signed off by the relevant department and processing the payment through accounts), the invoice will pass through many hands, meaning there’s more chance of it getting lost or forgotten about.They could also lose track of an invoice because of new accounting software or staffing changes. It’s a good idea to check in regularly to make sure you have the correct contact details for the person in charge of sorting your fee. If the staff member you usually send invoices to has been replaced, the person taking over from them may need some time to settle into their new position, so try to be patient and understanding.

Miscommunication

It’s important to be clear about your payment terms from the very beginning. It could be that the person in charge of paying your invoice is different to the person you signed your contract with, meaning they may be unaware of things like your due dates and preferred payment method. So that everyone knows about your payment expectations, you should include the following information on all of your invoices:
    Invoice number and datePayment due dateAmount duePreferred payment methodPenalties incurred for late payments
For more information on what to include on an invoice, check the government’s web page on taking payments from customers.

Cash flow problems

As a business owner yourself, you’ll know how important cash flow is for keeping your company afloat. So you should be able to sympathise with a client who’s missed a payment because of a cash flow problem.Although it might be inconvenient, try to give them longer to make the payment and speak to them about a realistic due date. If that means your own cash flow will be affected, you could compromise by requesting the money in instalments.

They’re unhappy with your product or service

Dissatisfied clients may refuse to make a payment because they’re unhappy with the product or service you’ve provided.It’s important to keep the line of communication open with your clients whenever you’re doing work for them so that any issues can be discussed and resolved along the way.You might choose to ask for a non-refundable deposit before work starts so that if the worst happens and they decide not to pay your full fee, you’re not left completely out of pocket.

Steps for dealing with an unpaid invoice

1. Check and follow up

If you think a client has missed a payment, the first thing you need to do is double-check that you’ve sent the invoice to the correct person, with all the necessary information clearly included on it. If you’ve missed anything off, you’ll need to re-invoice them (unfortunately, this usually means resetting the time on the payment due date).Before you make contact with your client, you should also check your bank statements and mail to make sure you haven’t missed their payment.It’s also worth going through your correspondence to see whether they’ve already contacted you to explain the reason for the missed payment.Wait for a couple of days after the payment was due, then give them a gentle nudge. Follow up your original message with a polite reminder, resending the invoice to jog their memory.

2. Chase the payment

If your client doesn’t reply to your follow-up message, there are a few other ways to deal with an unpaid invoice.Contact them again during normal business hours with a late payment letter or reminder, giving them 24 hours to respond. At this point, there’s every chance that the unpaid invoice is an honest mistake or due to a clerical error, so remember to keep your tone professional and polite.If they still don’t respond, changing your method of communication can be the push the client needs to make the payment. A phone call is a lot harder to ignore than an email and by speaking to someone over the phone rather than in a faceless message, you’ll remind them that you’re a human being with bills and commitments of your own.If that doesn’t work, try reaching out to someone else at the company, like one of your contact’s senior colleagues, their manager or – even better – a staff member who works in the accounts department. You could also consider changing up who in your business does the chasing to give the impression of escalation, even if the new person isn’t more senior.If they finally get back to you and promise to pay the invoice, make sure you agree on a payment date or work with your client to set up a payment plan.Keep records of all the times you’ve had to ask for your fee, in case you need to take the matter further. If it goes to court, you’ll need to prove you’ve done everything you can to try to get paid.

3. Take further action

Send a demand letter
It may not be a legally binding document, but having your lawyer draw up an official demand letter can be the motivation your client needs to settle the unpaid invoice.
Use a business mediation service
If you can’t reach an agreement with your client because they’re unhappy with your work, it might be time to get a third party involved.A trained, neutral mediator will work with both sides to try to resolve the situation.
Use Money Claim Online
If you’re owed £100,000 or less, you can use the government’s Money Claim Online service to request the payment from your client. Once you’ve registered and submitted the details of your claim, the client will receive a request for payment from the court, followed by a County Court Judgement if they still don’t pay.They’re an efficient way to make yourself heard, as they can affect a company’s credit rating for six years.
Sell an unpaid invoice
If an unpaid invoice is causing you stress, it might be worth paying a debt collection agency to do the legwork for you.While there are no guarantees, good debt collectors are experts in their profession and have proven experience in ensuring unpaid invoices are settled.
Take the client to court
This is the last straw and should only be considered once you’ve explored every other avenue.Depending on the amount you’re owed, it might not be worth the time, money and hassle of going to court, but sometimes it’s the only option.For claims less than £300, small claims court hearing fees start at around £25-35, but the exact figure depends on how much you’re owed and where you are in the UK.Think carefully about taking the matter to court, because if you lose you may get a court order against you and have to pay your client’s costs. Also, it’s unlikely that you’ll get what you’re owed if your customer doesn’t have the money.

Explain your procedure clearly

Be upfront about your invoicing and payment requirements from the very start. It’s important to be clear about things like payment amounts, due dates and how payments are made to prevent confusion further down the line.

Automate your invoicing

Remembering invoicing details might not be high on the list of priorities for either founders or clients. With Ember, you can automate your invoicing so you don’t have to remember to chase payments. Sending your invoices on a recurring and consistent basis also makes it easier for your clients to pay you on time as they’ll be able to plan their finances better.

Invoice more regularly

By sending invoices fortnightly instead of monthly you’ll have more contact with your client, so they’re less likely to forget to pay you. Sending invoices more regularly might also be better for your cash flow.

Send payment reminders

Payment reminders are typically sent the day before an invoice is due, the day an invoice is due and a week after an invoice is due.You should include information about how much the client owes, how they can pay and when the payment should be made.

Offer multiple payment options

All businesses work differently and what works best for your accounts department might not be the same for your clients'. If you offer at least two payment methods, they can choose the one that best suits their payment process.

Give discounts for early payments

Charge penalty fees

Late fees for late or missed payments are a good way to incentivise your clients to pay you on time.Small businesses can set their own terms, as long as they’re within the government’s guidelines of up to eight per cent interest plus the Bank of England base rate on late payments.According to the law, a payment becomes late 30 days after either the customer has received the invoice or the goods or services are delivered.

Summary

No one should have to work for free but it’s a sad fact that occasionally you’ll come across a client who is unable to – or refuses to – pay on time.Often an unpaid invoice is just an oversight and a simple reminder is all it takes to get the money you’re entitled to. If that doesn’t work though, you might have to take things further by speaking to someone else at the company or getting a third party involved.In some cases, it’s worth taking the matter to court. However, you should only do this if you can afford the time, money and stress that’s involved.Sometimes you just have to cut your losses, learn from the experience and focus your attention on your more trustworthy and reliable clients.
Cam Finney
Cam FinneyHead of CX

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