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What to do when a Client Doesn’t Pay

by constructaquote - 30 June 2016


There are many perks of being self-employed or running your own small business, but chasing late payments is not one of them. Almost everyone who works for themselves has had to deal with a late or non-payer at least once in their career and here is some guidance for both avoiding non-paying clients and handling them should you find yourself in that unenviable position.

Practice Good Habits

The best place to start for handling late and non-payers is to prevent them coming your way in the first place. Good credit control habits like ensuring you have your own clear payment terms set and getting your client to sign them before business commences. Once they’ve signed to agree it makes it much more difficult for them to refuse to pay or not stick to your payment terms.

Be Consistent and Firm

Once the payment date for an invoice has passed then you should immediately start chasing. Send an email to the same email address you sent the invoice and enquire about when payment will be arriving. If you choose to call rather than email, then make sure you follow up with an email so everything agreed is down on paper.

Persistently chasing is completely fine but you need to be firm at the same time.

Consider Elevating your Concerns

If you are in contact with an account manager or a single point of contact at a company, then consider seeking out someone more senior in the company. If your invoice isn’t being paid and your contact isn’t any closer to sorting it out, then you need to go higher to get a resolution. Find a senior accounts contact if at all possible and once again firmly ask for an exact payment date for your invoice.

Add Statutory Interest or Late Payment Charges

The government helpfully lays out what you can legally charge a late payer whilst invoices remain unpaid. Once your payment terms have passed you are legally allowed to add interest and interest is set by the government and is currently at 8% plus the base rate of the Bank of England.

In addition to interest you are legally able to add a fixed late payment charge to the debt which is once again specified by the government at between £40 and £100 dependent on the size of the bill in question. When you add a late payment charge you must also reissue your invoice.  These are actions you can take before mentioning court action.

Opt for Court Action

If you have done all of the above, then it is time to notify your client that they have a set time in which to pay (7-10 days is normal) before you initiate a claim with the small claims court to recover your outstanding money. The email needs to be polite and firm and often just notification of potential court action is enough to get a reluctant client to pay.

If you do need to take your debt to the small claims court it is a relatively simple process, especially if you have good records and whilst it isn’t the quickest process, you should get your payment at the end of it all.

Check your Cover

Many small businesspeople are not keen on the idea of a court claim and instead want to consider claiming on their insurance. With professional indemnity insurance you may find you are insured for non-payment of invoices.

Your professional indemnity insurance may pay out if the client if withholding payment because of something they allege you have done. If they are unhappy with the project and you are found to be negligent then your professional indemnity insurance policy may pay out. Your insurer may help with anything with guidance for handling an unhappy client refusing to pay to defending a claim should it make it all the way to court.

Your professional indemnity insurance is not in place simply to handle lazy payers and those who just don’t seem to get around to it but this doesn’t mean that your insurer won’t provide you with some advice if you ask for it.

As long as you are acting proactively and have good systems in place you can only hope that your clients act accordingly. Your setup means you are primed to handle late payers swiftly and stop them becoming non-paying clients.