As a business, having to deal with unpaid invoices can make doing business challenging. The COVID-19 pandemic has caused financial difficulties for many and could be making the problem of late payments worse for small businesses, the self-employed and freelancers, especially with the new Breathing Space Scheme implemented by the Government.

The Forum of Private Business indicates that 1 in 4 businesses fall into insolvency as a result of late payment of invoices. While business owners need to worry about paying suppliers, staff members, rent and bills, unpaid invoices can have serious consequences. For freelancers, invoices are direct income and going unpaid can mean getting into personal financial difficulty. With this being the case, can you really afford to wait?

This post looks at six ways you can manage debt recovery and payment procedures in your business.

1. Clear payment terms

From the outset, your clients should know when they are expected to pay you. However, this means setting out in unambiguous terms the work you are doing, when that work will be completed, the cost, when you will raise an invoice for the work and when that invoice will need to be paid by. Once you have established a process, draft a document and include it in your terms of work. Such a clearly drafted document can help to avoid disputes and delayed payments. It is also a good idea to indicate your payment terms at the bottom of your invoices confirming how many days they have to pay the invoice and what interest will be incurred if they do not.

2. Interest

It is important as a company to decide whether you will be charging statutory interest at 8% above base rate, or contractual interest. With contractual interest you can decide as a business what interest you would like to charge for late payment/non-payment if your invoices; however, you will need to confirm this interest rate in your client engagement letter and/or in a contract which confirms the work you will be undertaking. Your client will need to sign the client engagement letter and/or contract to confirm that they are in agreement with your terms before you commence work.  It is important to note that there is a limit on how much contractual interest you can charge.

3. Invoice on time

This may seem simple, but raising your invoice quickly, demonstrates that getting paid is important to you. It also provides the person or business you are invoicing with certainty – they are not left waiting for an unexpected invoice to appear. Ensure your actions match your business terms and be prompt and clear when raising an invoice.

4. Schedule reminders

After you have sent your invoice, be sure to set a reminder for when it falls due and check whether it has been paid. If your invoice has not been paid by the date mentioned, you should send a reminder email or letter. Following up sends a clear message that you take payment terms seriously. It is also a good idea to advise your client within your reminder letter that interest will begin to accrue from the day that the invoice became due and that if payment is not received (you can include a final deadline for payment) then you will be looking at instructing a debt recovery lawyer or issuing a claim yourself.

5. Establish a process for late payments

No matter how diligent you are with your terms of business and chasing invoices, you will likely encounter late payments. You should establish a clear process for dealing with late payments, which may even include the assistance of debt recovery lawyers. You may wish to include several steps in your approach, including starting with a simple phone call to establish why payment is late and when you could expect to be paid and/or sending a reminder letter as set out above. Once you have established your process, it will become easier to keep on top of your unpaid invoices.

6. Getting legal advice

In some cases, it may be necessary to instruct experts to manage the debt recovery process for you. At Thompson Smith and Puxon, our debt recovery lawyers will initially send a Letter of Claim to the debtor requesting payment and setting out the additional costs that the debtor has incurred such as: interest, legal costs and/or compensation under the Late Payment of Commercial Debts (Interest) Act 1998 (if the debtor is a company) – in many cases, this is enough to prompt the debtor into paying. If you are struggling to obtain payment of an invoice from a client of yours, then you can get in contact with our Dispute Resolution team today on 01206 574431 or, alternatively, you can email the team through