Late payment: the perrenial problem of unpaid invoices

Unpaid invoices are a frustrating reality for many small business owners. In fact, FSB research suggests a whopping 52% of businesses reported dealing with late payments in 2022, and to be fair, it’s probably worse than that now.?

We know how critical it is for businesses to get paid on time, whether it’s for a one-off job or a regular retainer. Managing cash flow is tricky at the best of times, and if people aren’t paying that job becomes more difficult. Unpaid invoices can seriously hurt your business and cause long-term damage – never mind time out your day to chase.?

So what are your options if a customer fails to cough up? Let’s start from the beginning – the invoice!?

1. Invoicing matters!?

First things first, make sure your invoices are clear and complete. This helps speed up the payment process. Do include:?

- Your contact details

- A clear description of the service or goods and the amount charged (itemised, if possible)

- Payment terms and due date should be prominently shown – maybe depicted more than once!

- Correct references (both yours and your customer's)?

Using a standard invoice template is a great way to ensure you don’t miss anything, and FSB members can access these on our member portal.?

2. Chase for Payment?

Most invoices have a payment term (30 days is common enough, although 14 is also fair enough these days) clearly stated. If the due date passes without payment, start chasing it up immediately. Send a polite email reminder or give the client a call to remind them of the outstanding payment.?

3. Use a Credit Hold?

If a client still hasn’t paid, consider putting a hold on any further work for them. This is known as a credit hold or administrative hold. Often, the lack of your services will prompt them to settle their debt. If not, there are still other steps you can take. The point here is not allowing a fortune in unpaid invoices to rack up because the bigger the debt the bigger the potential problem that’s brewing.?

4. Send a Letter Before Action?

So, you’ve chased and chased and it’s clear your client can’t pay or won’t pay. Your nobody’s artificial line of credit, so it’s probably time to press the nuclear button with a letter before action. This is effectively your final warning before taking legal action. I call it the nuclear option, as once you send one of these, you’re probably not going to work with this client again, which is what makes invoice chasing such a difficult task for many business owners, particularly if they have previously been a good client. But ask yourself this, do you want to be working with people like this who won’t play fair, pay fair??

This letters tells the client they have a certain amount of time to pay up before you start legal proceedings. For business debtors, this period is usually at least 14 days. For individual debtors, it’s at least 30 days.?

FSB members can download a template letter before action from the FSB Legal and Business Hub. Or, you can have our debt recovery experts at Markel Law send a letter for you for just ￡36.?

5. Start Legal Action?

If they still haven’t coughed up what they owe, it’s now time to consider legal action. Before doing this, it’s wise to get advice from a specialist. FSB members can call the 24/7 legal advice line for help from a debt recovery specialist.?

You can also enlist the help of FSB Debt Recovery, who can assist with:?

- Issuing proceedings for non-payment

- Serving a statutory demand or petitioning for bankruptcy

- Taking enforcement action to recover a judgment?

They also provide tools and advice if you prefer to handle the process yourself.?

Remember, you’re not alone in dealing with late payments. Following these steps can help you get the money you’re owed and keep your business running smoothly. Happy invoicing!