It can be incredibly frustrating when a client refuses to pay an invoice that is due. Not receiving payment can put financial strain on your business and make it hard to cover your own expenses.
However, there are steps you can take to get the payment you are owed.
This article will outline the process to follow if a client does not pay an invoice, from initial communications to taking legal action.
Send Reminder Notices
The first step when a client has not paid an invoice by the due date is to send them a reminder notice. Give them the benefit of the doubt that they may have simply forgotten or overlooked paying the invoice.
Send the reminder notice via an official letter format. This gives the notice more formality and seriousness compared to an email or phone call. The letter should identify the unpaid invoice, the amount owed, and the original due date. Politely request for them to pay within 7-14 days.
If you do not receive payment after sending a reminder notice, follow up with a phone call. Speak to the accounts payable department or person responsible for payments. They may provide insight into why the invoice has not been paid or when you can expect payment.
Charge Late Fees
If a client continues to go past due on an invoice, you may want to consider charging late fees. This covers the cost you incur from the unpaid invoice and acts as a deterrent for further late payments. Make sure late fees are included in your original contract or terms and conditions so the client is aware of them. If you’re unsure about how to communicate this, it’s helpful to review the best practices for late fee wording on invoice documents to ensure clarity and effectiveness.
A typical late fee is 1-3% of the invoice total for each month past due. Or you may charge a flat rate, such as £50 per month. Calculate the late fees owed on overdue invoices and include it on reminder notices to the client. Be sure to stipulate when late fees take effect, such as 30 days past the due date.
Hire a Collections Agency
If you have sent multiple reminder notices and a client still refuses to pay, you may need to escalate measures. Consider hiring a collections agency to recover the unpaid invoice.
Collections agencies take on debt collection on behalf of companies. They will contact your client through letters, calls, and legal means if necessary. The agency typically takes a percentage of the total debt recovered, such as 20-50%.
Hiring a professional collections agency saves you time having to chase payment. It also shows the client you are serious about pursuing the debt and legal action if needed. Do research to find a reputable agency that gets results.
File a Claim in Small Claims Court
If hiring a collections agency does not resolve the nonpayment of an invoice, your next recourse is taking legal action. You can file a claim against the client through the small claims court in the UK.
The small claims court handles cases involving amounts up to £10,000 in England and Wales or £3,000 in Northern Ireland and Scotland. To file a claim, you will need to submit an application form with details about the nonpayment of invoice. There are fees involved with submitting a claim, which you can recoup if you win the case.
Gather all documentation related to the invoice and contract to support your claim. If the judge rules in your favour, the client will be ordered to pay the invoice amount plus your court fees. Having a court judgment may encourage the client to finally make payment. If not, there are legal means to enforce the judgment and recover the debts owed.
Refuse Future Work
In addition to taking legal action, you should refuse to take on any future work from the delinquent client. Make it clear that you will not begin any new projects until all overdue invoices are paid in full.
Not allowing future work until payments are up-to-date provides an incentive for the client to fulfil their obligations. It also protects your business from sinking further resources into the relationship only to continue having payment issues.
Be willing to work with the client again once they pay off outstanding invoices. But if problems persist, it may be best to terminate the business relationship altogether.
Reevaluate Contract Terms
If you consistently have issues with late invoice payments from clients, reevaluate your contract terms and policies around payments. Some areas you may want to address include:
- Requiring a deposit or down payment on large projects before work begins. This good faith payment shows the client is invested.
- Shortening payment terms so invoices are due in 15 or 30 days rather than the standard 30 or 60 days. The quicker timeline helps keep payments on track.
- Adding language about charging late fees on past due invoices.
- Including conditions about withholding work on accounts with balances in arrears.
Strengthening your contracts to protect payment terms is better than trying to force compliance later. Work with a lawyer to draft air-tight contracts and invoice payment policies. This is important whether you are a small freelancer or run a large B2B branding agency.
Having a client refuse payment on an invoice can quickly spiral out of control and impact your business’s cash flow. Use the steps outlined in this article at the first sign of nonpayment of an invoice. With a combination of reminders, late fees, collections agencies, and legal action, you can recover the payment you are owed. And be sure to reevaluate your contracts to prevent payment issues with future clients.
