An unpaid invoice can have a severe impact on your business. If you don’t get paid on time for the goods and services you provide, your cash flow is disrupted, and your administrative burden increases. And, let’s face it, you need to have an awkward conversation or two with non-paying client.
Unfortunately, late payments are more common than you might think. According to the accounting platform QuickBooks, over 70% of small to medium-sized enterprises (SMEs) were negatively impacted by unpaid invoices in 2023.
But what exactly happens when a client doesn’t pay you on time? Keep reading to find out how best to deal with unpaid invoices.
Check that you’ve prepared the invoice correctly
Before jumping to conclusions, double-check that you did your part and prepared the invoice correctly. If there are any mistakes or omissions on the invoice in question, this could delay the payment, or make the recipient unable to pay altogether.
If you have made an error, don’t assume the recipient will actively reach out and tell you. Maybe they hadn’t noticed either, maybe they’re busy, or maybe they’re just trying to avoid paying. Either way, in the first instance, check that you’ve prepared the invoice correctly.
To whom is the unpaid invoice addressed?
First, make sure you’ve addressed the invoice to the correct person. The person or company you’ve performed a service for might not necessarily be the one who pays you.
For example, if you’ve done marketing work for Mr Smith in Company A Limited, you might need to address the invoice to the accounting department, rather than Mr Smith himself. As a result, he may have forgotten to forward the unpaid invoice, or even failed to realise that he had received it at all, leaving it forever lost in his in-tray.
If you are unsure how to address the invoice, contact the client and double-check. This will allow you to send it to the correct person and avoid delays.
Have you included all of the right information?
Missing important details, or making a mistake on an invoice, could mean the recipient cannot pay you. So, check that you’ve included all the necessary details and haven’t made any errors. As a minimum, the invoice should include:
- The word ‘invoice’
- Invoice date
- Invoice number
- Your business name, address, and contact information
- A clear description of what the invoice is for
- Date of work/goods provided
- Total payment due
- Acceptable modes of payment (e.g. if bank transfer, include your bank account details)
If you’re a sole trader (self-employed), you must also include your name and business name. If you run a private limited company or limited liability partnership (LLP), you also need to display your company number and full company name as it appears on your Certificate of Incorporation, including ‘Ltd’ or ‘Limited’ at the end.
If you’re registered for Value-added Tax (VAT), you must meet additional requirements when issuing an invoice. For example, you must include your VAT registration number, the VAT amount, and the unit price for each item listed on the invoice. For full details on how to prepare a VAT invoice, see the HMRC website.
Is the invoice actually late?
Did you arrange a specific payment date with the client, or merely state a timeframe for when the invoice should be processed? Let’s say you agreed they’ll pay the invoice within 30 days. Is that 30 days from the day you carried out the work, or 30 days after the end of the month in which you sent the invoice?
The payment due date can be confusing, leaving both parties with different expectations. To avoid unpaid invoices, agree on an exact date for the money to reach your account.
If there is a specific date, an invoice is considered late if it remains unpaid after 60 days of the business transaction (unless you’ve agreed on a longer period). If there is no specific payment date, then by law, an invoice is late if it is delayed by 30 days or more after the customer receives the invoice, or after you deliver the goods or service.
Steps you can take to get paid
Once you’ve done all your checks and you’re happy that everything adds up, let’s examine the steps you can take if you have an unpaid invoice:
1. Contact the client
When someone owes you money, it can be a very uncomfortable and challenging situation. But remember that maintaining a strong and amicable relationship with your clients benefits both of you. So, first things first: get in touch with them.
How you contact them depends on the type of relationship you have. Have you worked together before? Maybe pick up the phone and give them a call. Was this your first time? A polite email or letter might be more suitable.
At this stage, you’re simply issuing a friendly reminder about the unpaid invoice. You should avoid being accusatory or confrontational. Try something like this:
Hi [name],
I hope you’re well. I’m just getting in touch about your [month] invoice. In case you’ve missed it, I’ve attached it to this email. If you have any problems, please don’t hesitate to contact me.
Thank you for your business, and I look forward to working with you again.
If they don’t respond, try another form of communication. For instance, if they haven’t replied to your email, call them, and vice versa. You should ensure you’ve done everything you reasonably can before taking action.
2. Send an unpaid invoice notification
You could send them an unpaid invoice notification if that doesn’t work. Again, this is a friendly reminder, but this time, you’re being more direct about getting in touch about an overdue payment.
You could say something like this:
Hi [name],
I haven’t heard from you since my previous email on [date] regarding invoice [invoice number], which was issued to you on [date].
I want to check that this invoice hasn’t been missed or lost. I’ve attached it again to this email for your convenience.
I’d really appreciate it if you could process this invoice as soon as possible, as payment is now [number] days overdue. If you have already paid, please confirm this by replying to this email.
It’s also worth marking this message as of ‘high importance’. This way, it’ll be flagged as urgent when it reaches the client’s inbox and, hopefully, prompt them to take action.
3. Start charging interest
At this stage, if you haven’t pre-agreed an interest rate with the client in your service contract, you could consider charging statutory interest on the unpaid invoice. The government website advises that you can claim an annual statutory interest of 8% plus the Bank of England’s base rate, which is currently 5.25%, so 13.25% in total. Here’s an example:
- You’re owed £1,000
- That’s £85 in statutory interest (1,000 x 0.1325)
- Divide £85 by 365 to get the daily rate: 0.23p
- If the unpaid invoice is overdue by, say, 50 days, that’s 50 x 0.1325 = £6.63
In addition, you can charge a fixed sum for the cost of recovering an unpaid invoice. The amount you can charge depends on how much the client owes you.
| Amount of debt | What you can charge |
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000+ | £100 |
Source: gov.uk
Generally, we’d say opt for interest charges only if necessary and only if you feel it’s appropriate. If you’ve worked with this client before and this is their first time missing a payment, perhaps it’s just an honest mistake, or they’ve had an emergency. Your professional relationship is more valuable, so charging interest may not be the best course of action.
On the other hand, if they have a track record of not paying their bills on time, you might feel like you have no choice but to charge interest. This is just a suggestion. First, be sure to assess how it could affect your partnership, your business, and what your priorities are.
4. Arrange a payment plan
If the customer is unable to make a full payment, you could work out a suitable payment plan to help them settle the unpaid invoice. Communication is paramount to make sure that both parties are on the same page.
Start by checking what they can pay now (if anything). Then, arrange for the remainder to be paid in manageable and reasonable instalments, such as monthly or quarterly.
To preserve your connection with the customer, try to be as flexible as possible. However, don’t forget that you have a business to run, too, so don’t let an unpaid invoice jeopardise that. You should work closely with the client to establish a payment plan that suits you both.
5. Issue a final reminder
If you’re still chasing an unpaid invoice to no avail, try sending a final reminder letter. This letter should be firm, clearly highlighting your previous communication attempts, invoice details and overdue period, and next steps, such as:
- using a mediation service
- taking legal action
You’ll often find that the final reminder letter adds a sense of urgency, prompting them to respond and process the unpaid invoice, to avoid having a claim issued against them or their business.
6. Use a mediator to settle the unpaid invoice
A mediator is an impartial professional who aims to help both parties find a peaceful solution. It’s a confidential process whose outcome you and the customer decide together.
The mediator is there to ensure a fair and happy settlement and offer a quicker, cheaper, and less stressful course of action than going to court. There are hundreds of professional mediators in the UK. Use the Civil Mediation Council website to find one who is right for you.
Remember that mediation only works if both parties agree to cooperate. If you fail to do so, you may have to take legal action.
7. Issue a statutory demand
A statutory demand is an alternative to a court claim. It is considerably more serious than the firm letter we mentioned earlier, because if a statutory demand is ignored, then the person or company that owes you money could be made bankrupt or insolvent.
To issue a statutory demand, the unpaid invoice value must be £5,000 or more for individuals and £750 or more for businesses. The debt also needs to be undisputed by the debtor, something that you’ll need to be able to prove.
If you have to issue a statutory demand, it’s essential to do this correctly and lawfully. Letter templates are available on the government website, depending on the type of debt you’re chasing, who the debtor is, and which part of the UK you’re in.
You then need to ‘serve’ (deliver) the statutory demand to the customer. You can:
- Give it to them in person
- Deliver it to their company’s registered office address (or their main place of business)
- Give it to the company’s director, secretary, manager, or principal officer
- Ask a solicitor to arrange a process server to deliver it for you
You should try to serve the demand in person where possible. If you can’t, you can send it by registered post or put it through a letterbox. If the debtor is based outside of the UK, you’ll need to find a legal advisor to help you issue a statutory demand for an unpaid invoice.
Considering its potential repercussions, we can’t stress enough how serious this course of action is. If you choose to take it, seeking professional advice is crucial.
8. Make a court claim
Another alternative is to file a court claim (also known as a money claim) for the unpaid invoice, including any interest that may apply. Before you do this, though, we recommend weighing the pros and cons.
It’ll cost you time and money to file a claim, so you should assess whether legal action is worth it and how it could affect your business before proceeding.
Remember that, depending on the situation, the client could dispute your claim, causing additional strain. If you’re sure you want to make a money claim, you can generally do this online unless:
- You don’t know how much money you want to claim (you’ll need to provide an estimate)
- Your claim is for more than £10,000, and you need help paying the court fee
- Your claim is for £100,000 or more
If any of the above applies, you must claim by post using form N1. You’ll also need to provide the debtor’s details and pay a court fee, depending on the debt you’re claiming.
| Claim amount | Court fee |
| Up to £300 | £35 |
| £300.01 to £500 | £50 |
| £500.01 to £1,000 | £70 |
| £1,000.01 to £1,500 | £80 |
| £1,500.01 to £3,000 | £115 |
| £3,000.01 to £5,000 | £205 |
| £5,000.01 to £10,000 | £455 |
| £10,000.01 to £200,000 | 5% of the claim |
| More than £200,000 | £10,000 |
Source: gov.uk
Once you’ve submitted a claim, it’ll be sent to the debtor with a response deadline. If the unpaid invoice is settled by then, you need to update the claim appropriately to confirm that you’ve received payment successfully.
However, if you don’t get a response or the client refuses to pay, you can request a judgment, or you might have to go to a court hearing if you disagree with their response. Details on updating your claim and next steps can be found on the government website.
Conclusion
Chasing unpaid invoices can be uncomfortable and stressful. It can also jeopardise your business, cash flow, and professional relationships. However, whether there’s been an honest mistake, a genuine delay, or someone is simply trying to get out of paying, unpaid invoices are common.
If you find yourself missing a payment from a client, you can use the steps in this article to deal with it appropriately and amicably.
