What Can You do If Your Invoice Doesn’t get Paid?

You’ve chased and chased and still not been paid!

What’s next?

When you’ve done all you can to chase a debt and payment is still not forthcoming, it’s frustrating. But what can you do about it?

Firstly check, did you do everything you could?

I have known businesses who have only ever chased by email and never actually picked up the phone to their customers. If that’s you, get on the phone now!

What are your options if you genuinely have done everything you can (including sending the sales team in)?

That will depend on why you haven’t been paid and the invoice(s) value.

The key to deciding which debt recovery option will give you the best outcome is to establish why you haven’t been paid. There’s little point in incurring the expense of taking someone to court for payment who has no money to pay with and has HMRC knocking on their door too!

You should weigh up the value of the invoice(s) against the costs of each course of action. Some will be more viable than others.

Payment Plan

If your customer wants to pay you but can’t, try setting up a payment plan with a weekly or monthly payment they feel they can afford.

Ideally, you want to control the payments, so using DD would be a good option. The cost involved should outweigh the cost of your time chasing late instalments.

Payment plans are a great way to support good customers who are experiencing temporary cash flow challenges. Being supportive through a difficult patch is often rewarded by loyalty and can create champions and ambassadors for your business.

Claim Your Goods Back – Retention of Title

If your Terms and Conditions contain a Retention of Title (ROT) clause, you may be able to get your goods back.

The goods need to be easily identifiable as having come from you, and you may need to be able to match them back to the specific unpaid invoice(s).

If they’ve been incorporated into another product, they must still be in their original form and easily removed.

These two factors are not insurmountable with the right additions to your ROT clause, but you may find it easier to find other ways to secure payment.

Use a Debt Collection Agency

Handing the debt over to a third party can be very effective. A lot of the time, just being chased by someone else can encourage payment.

Many debt collection agencies can also help trace debtors who appear to have disappeared off the face of the earth.

Legal Action

You can either DIY through the small claims court or use a solicitor. The latter is a more costly option but, depending on the size of the debt and any possible defence, may be more cost-effective in the long run.

If your customer is a consumer, you must follow the Pre-Action Protocol for Debt Claims before starting any legal proceedings.

Statutory Demand

It is a formal demand and is the precursor to full action to seek the Bankruptcy of an individual or the Liquidation of a company.

I’ve seen this advocated at the first sign of payment being late, which feels like a pretty nuclear option to me. Still, it is a useful ‘blunt instrument’ to provoke a customer into having a conversation if they’ve been ignoring you for a while.

Write the Debt Off

This is the costliest option, though it may feel like the easiest.

Suppose you have a debt of £1,000 that you chose to write off, and your margin is 20%. £800 of what you have written off is pure costs and is a direct hit to your profits.

Therefore, to recover those costs alone, you will have to sell another £4,000 (£3,200 costs £800 profit).

Sell the Debt

Some businesses will buy more significant debts for a percentage of their value.

Not generally suitable for a single debt as there is no spread of risk for the buyer. This practice is more commonly used where the invoices are spread over a high volume of customers.

Trade Credit Insurance Claim

I’ve left this until last, as it’s not an option unless you took out insurance in the first place.

Trade Credit Insurance can be a valuable part of your credit management toolkit. With the caveat that it’s not a replacement for best credit management practices.

Trade credit insurance is for products and services that are due within 12 months. You can claim when customers do not pay their invoices or pay them later than the specified payment terms.

That’s a bit of an oversimplification as there will be conditions to making a claim, but that’s the general gist.

If you’re unsure which option is best, why not book a quick call and we can talk it through?

Schedule time with me