As a small business owner, you work hard to provide great products or services to your customers. But despite your best efforts, you sometimes encounter customers who refuse to pay their invoices.
This can seriously impact your cash flow and profitability, but there are legal steps you can take to enforce payment without requiring costly litigation in court. In this article, we’ll explore how to collect overdue payments from clients and delve into key strategies so you can proactively collect what you’re owed.
Send Terms and Conditions, Proper Invoices & Payment Reminders
The payment collection process starts as soon as you are instructed to provide goods or services.
Your chances of avoiding bad debtors are helped if your terms and conditions are explained before the contract is entered into. If you are providing goods or services that are complex, you should set out what you will provide and what can be expected of it. Our company commercial department can draft contract documents for you.
When a request for payment is made, you should submit a proper invoice that outlines clear payment terms per your contract or agreement. Be sure to include important details like:
- Due date for payment
- Applicable late fees if payment is delayed
- Interest charges on unpaid balances
Send Reminders
Tracking invoices and sending friendly but firm reminders as due dates approach is also critical. At Howells Solicitors, our commercial litigation team can send reminder letters for you, or provide template letters for you to use yourself. Having a legal team draft these materials adds weight to your requests for payment.
Utilise Late Fees & Interest Charges
If mutually agreed upon in your original contract or service agreement, do not hesitate to enforce late payment fees or interest charges on outstanding balances. Calculate these amounts correctly based on the terms and clearly communicate to customers the extra costs being applied.
Having concrete late penalties that escalate over time can be an effective motivator for customers to pay what they owe. Our commercial litigation experts at Howells can ensure you apply these remedies in compliance with the law.
Even if an entitlement to claim interest for late payment is not included in your terms, provided that your customer is another business, you can claim interest pursuant to the Late Payment of Commercial Debts (Interest) Act 1998.
Send Official Late Payment Letters
If invoices and reminders fail to spur action, the next step is sending an official letter demanding payment of the overdue amount. Be sure to document previous attempts to collect so this more severe action is warranted.
The commercial litigation team at Howells Solicitors has extensive experience drafting hard-hitting but legally compliant demand letters, which comply with the relevant pre-action Court protocol. Following Court protocols offers you the best opportunity to recover your legal costs in any subsequent Court proceedings. Having our law firm logo on these notices will also motivate many bad debtor customers to pay you what you are owed.
Initiate Legal Proceedings as a Last Resort
If all else fails, formal legal action may be required to recover late payments in commercial transactions. There are a range of legal proceedings that can be initiated, like arbitration or filing claims in court. If the debt is sufficiently large and the claim undisputed, insolvency proceedings can be instigated by the service of a statutory demand. Although insolvency proceedings are not designed to be a method of debt recovery, the threat of personal bankruptcy or the winding up of a company can result in payment. Howells has extensive experience with all these alternatives.
For most small businesses, getting embroiled in messy legal battles is not ideal. Our preference is always to facilitate resolution using the strong demand letters, and other steps outlined above.
We only proceed with litigation when absolutely necessary to secure you the payment you are legally entitled to.
Guarantees
If you intend to offer credit to a company client, think carefully about insisting upon personal guarantees from the directors. A company is a separate legal entity from the people who own or operate it. It is consequently not unusual for companies to enter into liquidation if the company is worth little and the debt is sufficiently large. Obtaining a personal guarantee from the directors can avoid this problem.
Our lawyers at Howells are experienced in drafting guarantees and indemnities and can assist you in preparing template documents for you to use within your business.
Don't Let Late Payments Damage Your Business
At the end of the day, you want to focus your time on providing outstanding products and services—not chasing down delinquent payments from customers. With Howells Solicitors as your commercial litigation advisors, you can take proactive legal steps to get the money you are owed.
Our team is here to support small businesses like yours. Contact Howells today to schedule your initial consultation, and ensure you have the legal muscle to enforce invoice payment. Now you can confidently take on new business, knowing we've got your back if any customers fail to pay.
