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Unpaid invoices and late payments

Last updated on Friday, September 2, 2016

Written by Alex Cadman

Do you have unpaid invoices keeping you up at night? The Mail recently reported that contractors and freelancers lose an average of £2,472 each per year due to outstanding invoices and late payments.

Chasing clients and agencies for unpaid invoices and late payments can be stressful and can take hours of contractors’ time trying to get payment. In many occasions, late payment or no payment at all can put the contractor at risk of insolvency.

If you have suffered or are suffering from outstanding invoices and late payments, here are some steps you can take to ensure you receive your due payment:

1. Send a reminder email

When your agency or client becomes late in paying your invoice, send them a casual yet assertive reminder email about the overdue payment. If it is your end client that is responsible for the unpaid invoice, your agency should chase the payment for you, so be proactive and liaise with your agency.

Sometimes the payment could have been innocently overlooked or missed, but on some occasions, the client or agency may need more of a push to make the payment. There may also be the rare occasion that the client wants to dispute the invoice because they feel the contract work completed was not to standard.

In addition to sending reminder emails, try sending posted letters and making telephone calls to the agency or client (whoever is late on making the payment) to reasonably explain that payment must be made on the unpaid invoice or alternative action will be taken. After taking this step, give your agency or client seven days to respond with payment.

2. Add late payment interest to the unpaid invoice

Once the invoice has passed the payment deadline agreed in your contract, you can add statutory interest to the late payment amount provided that it is within the terms and conditions stated by your agency. Terms and conditions should be signed by you prior to starting a contract with an agency.

The statutory interest for due invoices and late payments is 8% plus the Bank of England’s base rate for business to business transactions. The Bank of England’s base rate is currently at 0.25% since 4th August 2016.

To calculate how much interest your agency or client may owe you after being late on payment, first calculate the annual statutory interest on the unpaid invoice, followed by the daily interest; then you can determine how much interest you’ll be owed for the number of days the payment is late. For example:

  • Your invoice of £2,000 is 40 days late. The annual statutory interest would be £165 (£2,000 x 0.0825)
  • The daily interest rate would be £0.45 (£165 / 365)
  • The interest payment due by your agency or client for the unpaid invoice would be £18.08 (40 days x 0.45)

3. Use a debt collection agency

You can take this step from the start, or seek the help of a debt collection agency if liaising independently with the agency or client/customer does not yield payment. Depending on the service you choose, debt collection agencies will chase non paid invoices for you by emailing, telephoning and/or writing letters to your agency or client. They can take a soft approach in order not to ‘burn bridges’ between you and your agency or client.

An alternative to using a debt collection agency is to hire a solicitor that specialises in debt recovery, however, this can be more costly.

You can claim a fixed amount of the debt collection costs you incur, which is £40 for owed amounts up to £999.99, and £70 for amounts between £1,000 and £9,999.99.

4. If all else fails, file with Money Claim Online

If you have exhausted your resources and efforts in trying to receive payment for your unpaid invoice, as a last resort you have the option to file with small claims court through Money Claim Online. If you are a sole trader or small business/limited company who is owed less than £100,000, you simply need to go to the Money Claim Online website, create an online account and fill in the relevant form. Once you file the claim, the defendant will be served and will have 14 days from the date of service to file a response. Do note that if you make a claim through this service, there will be additional costs involved.

Providing that there are no issues with the work you provided as a contractor, the small claims court could rule in your favour. If your agency or end client still does not make payment, the County Court Judgment against them will sit on the public register for six years; however, you may still need to take further actions to chase the unpaid invoice.

Please take into consideration that this action may result in your relationship with the agency becoming irreconcilable, which could lead to you being overlooked for future contracts.

5. Prevent future due invoices and late payments

The best way to approach outstanding invoices is to prevent them all together. You can do this by working out clear payment terms between you, your agency and/or your client. This makes clear to everyone involved when payment to you is due and at what point it becomes a late payment.

Another tip is to communicate clearly. Do not take a laissez-faire approach with your agency or end client; make sure you are communicating with them regularly if required to ensure that everything runs smoothly. As for invoicing, a contractor accountant such as Churchill Knight & Associates Ltd can take care of the rest.

Invoicing comes part and parcel of a good contractor accountancy service, and we include this as standard in our bespoke service. Call 01707 871622 or visit our contractor accountants website to find out more.

What if my client disputes the invoice?

If your client disputes your invoice, it could be for a number of reasons including dissatisfaction with your service, belief that you did not complete the contract work or belief of negligence on your behalf. In this case, it’s best to have preventative measures in place such as Professional Indemnity insurance that could protect your business if a client claims there is a problem with your services as a contractor. There is also Legal Expenses cover available for legal costs incurred in defending a claim, i.e. a claim on an unpaid invoice.

Custodian Insurance is the official insurance partner of Churchill Knight & Associates Ltd, and can offer Professional Indemnity Insurance and Legal Expenses cover should you need legal assistance in the future.

Need more advice on invoices and payments? Contact our expert team who will be happy to advise you of your options. Request a callback or contact us via email today.

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