How Can My Business Effectively Chase Unpaid Invoices?

All UK businesses thrive on adequate cash flow. After all, there is little value in sending out invoices if the recipients avoid payment. However, even within commercial circles, chasing money from clients and consumers can be slightly awkward. This article will consider the most effective ways to chase unpaid invoices so your business can get paid while maintaining customer relationships. 

Overview

Recent studies have shown that around 30% of the invoices UK businesses send to their customers are not paid within the requested time. Instead, on average, most payments are approximately a week late. Some surveys estimate that late payments cost UK small business owners nearly three-quarters of a billion pounds annually.  

What are the main effects of late invoice payments on UK companies?  Some examples include:

1. cashflow difficulties, requiring businesses to look to costly credit or factoring services;
2. less capital investment in their business; and
3. late payment of their own invoices. 

Your Legal Position

The law permits UK businesses to claim against customers for non-payment of delivered invoices. You may hear this called a money claim or a debt action. Therefore, your business can bring a money claim against a customer that fails to pay their invoice within the allotted time.

However, before you initiate proceedings, you may wish to instruct a solicitor. This is because:

• there are usually legal costs (including court fees) to consider, not all of which you may recover from your debtor;
• your debtor may contest the claim, which will increase your costs; 
• you may face delays between you initiate proceedings and when the court schedules the hearing; and
• if your claim is unsuccessful, you may have to cover the other party’s legal costs.

There is another vital consideration here: do you wish to continue your business relationship? Even if you have a claim, initiating legal action against your customer may cause a breakdown in the relationship. Accordingly, if the invoice has been sent to a party who you wish to do business with in the future, you are unlikely to want to leap into legal action against them.

We will now consider what options are available to you if you wish to avoid legal action while also getting paid on time.

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Alternatives to Legal Action 

Tactfully Chasing

Many people respond best to kind, friendly words than aggressive, confrontational language. In this way, many businesses find that using an informal, warm tone is best for initial invoice-chasing correspondence. Politely chasing an overdue invoice will hopefully remind your customer of the work you have done so that they make prompt payment.

If a diplomatic or conciliatory tone does not produce results, you may wish to adjust your tone. For instance, expressing disappointment at the delay may signal your customer that they need to resolve the issue to avoid frustrating the business relationship quickly. 

In both cases, you should consider which individuals within your customer’s business you are writing to. You may have more success approaching the person with whom you have a relationship rather than the accounts department. Alternatively, you may avoid damaging the rapport with your contact in the business by sending a more formal request. 

Employing an Invoice Management Team

Many business owners do not wish to chase customers directly for payment. Instead, you may prefer to delegate this to a separate department within your business to protect the rapport you have built with your client. Therefore, you may wish to create an accounts department and delegate invoice chasing to them. 

Even if you are a small business with limited resources, you can create an email address under your business domain, such as “accounts receivables” or “finance”. From your customer’s perspective, they are simply dealing with the administrative functions of your business. 

Consider Amending Your Late-Payment Policy

You may wish to consider implementing or adopting a late-payment policy for unpaid invoices. For instance, you may adopt a policy where after three late payments exceeding a week from the due date, you charge a late payment fee of 5% of the invoice amount. Alternatively, you may choose to charge a flat fee. 

Before implementing any amendments, you should consider the legal and commercial ramifications. If you, as a supplier, do not have sufficient bargaining power, your customer may cease doing business with you and find a more malleable supplier. Alternatively, if you add considerable value and provide a differentiated product that your customer may struggle to find elsewhere, this may be a commercially sensible approach. 

From a legal perspective, you should ensure you give your customer ample notice and that they are appropriately signposted to the changes. Otherwise, they may argue that it is an unenforceable variation to the contract. A solicitor can advise you further. 

Key Takeaways

Chasing unpaid invoices requires balancing your cash flow needs with maintaining a good customer rapport. While the law gives you the right to sue customers for unpaid invoices in most circumstances, commercially, this may not always be the most sensible approach. You may therefore wish to adopt more informal and conciliatory approaches, such as tactfully chasing your clients. Alternatively, you can delegate collection to another department or create an email address exclusively for the collection. You may also wish to implement or amend your late-payment policy. 

If you need help chasing unpaid invoices for your business, our experienced e-commerce and online business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page. 

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