Whether you have a thriving local shop or you’re a burgeoning freelancer on the hunt for customers, you’ll likely be dealing with tons of different clients and businesses along the way.
You meet with them, do the work brilliantly, and submit your invoice – only to find a month passes, two months, three, and your coffers show no signs of life. Repeated calls to this client aren’t returned or are met with nervous promises that a cheque is in the mail.
After sending reminders and follow-ups, it’s time to take action. Here is your guide to dealing with unpaid business invoices.
Budget for It
While you’re procrastinating over missed payments, life and matters of money will still continue. The world of business is filled with risk, but it’s up to you to appropriately plan for when clients don’t make good on their promises.
Smaller freelancers may be used to the feast-or-famine financial lifestyle and larger companies may be able to absorb certain monetary hits here and there, but what if your client is putting you at risk of serious financial hardship?
How you budget for missed payments is difficult and up to your unique business circumstances, but in general:
- Start stockpiling savings whenever possible
- Diversify your clientele and never put all your eggs in one basket
- Start requiring smaller payments over a fixed schedule instead of one lump sum at the end
- Budget in emergency legal fees
Have a Crystal Clear Contract
Do you have a contract that protects your interests?
If not, you should have one, it should cover the basics, like the exact work you’re providing, a deadline, and a price, but don’t be afraid to include specifics on payment. A really useful thing to include is that they pay your legal costs if they do not pay on time.
Before you even begin on work, you should have payment terms and a timetable worked out with your client. Will there be an up-front deposit? Will the final payment come in a single lump sum or be paid out over time? How will they be paying you? What is the deadline for payment, and what will happen if payments are missed and debt accrues? Do you have a late policy? What about your debt recovery/legal costs?
Having such a thorough agreement will ensure you and your client are on the same page. It will also provide evidence of their failure to pay on time should you be forced to take things to a court.
Watch out though, if you send your contract terms and they write back with a purchase order saying their terms apply, the contract will be on their terms not yours.
Talk to a Business Debt Recovery Lawyer
With an invoice already past due, you may be hesitant to spend money on the legal fees of a debt recovery lawyer – but hiring one before it’s too late can save you money in the long run.
Often, a simple note with a legal letterhead affixed to it can scare a delinquent client into paying what your business is owed. But sometimes, more serious action is required.
Having an experienced solicitor with you will make the process easier, enabling you and your client to establish a binding debt repayment schedule or just help you file claims or petitions in court.
Thanks to the Late Payment of Commercials Debts (Interest) Act 1998, your business is able to charge interest on debt recovery costs (and on late payments), which can significantly ease the financial burden if the client acquiesces. A lawyer can explain this legislation to you and move forward with legal steps if there’s still no response.
It the debt is not disputed your final step could be filing a statutory demand, which is the first step toward issuing an insolvency petition for the delinquent company. It’s drastic, but it’s practically a guarantee of a response, and a solicitor will help you determine when the time is right for such a demand.
Ultimately, you have options beyond endlessly ringing a client and praying they pay. A debt recovery lawyer can take you through each step of the process.