How to get unpaid invoices paid

Unpaid invoices can be stressful and put pressure on your cash flow, but unfortunately they’re very common.

Waiting on an overdue invoice? Here are some steps you can take to get it paid.

It may be that your customer just forgot to pay, or missed your invoice in their inbox. A friendly reminder that your invoice is overdue might be all they need. Remember to attach the original invoice to your reminder email, letter or text message so they have all the information they need to pay.

Not heard back? Consider phoning or texting, if they don’t respond to your email.

Monzo’s get paid feature helps you keep track of overdue invoices, and quickly send payment reminders.

If you still don’t get a response to your reminders, now’s a good time to contact your customer and ask why they’re not paying. They might have cash flow issues themselves and not want to pay the full balance right now, or there might be a reason they’re withholding payment such as being unhappy with the product or service.

Once you know why they haven’t paid, you can work on a solution together – like a payment plan, or taking steps to understand why they weren’t happy.

If your payment is overdue and your customer doesn’t respond to your invoice reminders or messages about why they haven’t paid, you can consider sending a demand letter, also known as a debt collection letter or a final reminder.

This is likely to have a negative impact on your relationship with the customer, so should only be used when you’ve sent multiple payment reminders and spoken with the customer.

This is a more formal letter which states what’s owed, what steps you’ve taken to receive payment already (e.g. sent 5 reminders) and that the next step will be contacting a debt recovery agent. Be sure to say when the debt collection agency will be contacted, so the customer has a firm deadline to work towards.

If the overdue payment relates to a contractual dispute, you may want to seek legal advice before writing to the customer.

You should include your original outstanding invoice, with payment details, with the demand letter. In many cases sending the letter itself will be enough to get your customer to pay.

At this stage you can also consider a statutory demand, which is a legal demand for payment and can be used to show the person owing you money is unable to pay. You can read more about statutory demands here.

If there’s been no dispute of the invoice from your customer and the amount is under £100,000, you can take court action and file a county court claim against your customer. The government website has a detailed guide on making a claim here.

You should always take legal advice before taking this step, as there are some serious consequences of going to court for both parties, including cost penalties if you do not take the correct steps before issuing your claim in court.

You’ll need to have taken steps beforehand to understand each other’s positions and work out how to proceed. If you’ve done all of the previous steps, you should be covered. It’s a good idea to keep a log of all the ways you’ve contacted your customer about the unpaid invoice before proceeding with this step.

When you get to court, you will either win or lose your case. If you lose you have no right to the debt. If you win, there are a range of options you can take to enforce payment including high court enforcement officers/bailiffs, charging orders over property and third party debt orders.

If you choose not to go to court, you can consider involving a debt collection agency.

When you involve a debt collection agency, you either instruct them to work on your behalf to collect the debt, or you ‘sell’ the debt to the company, at a slightly lower cost than the total debt, typically 20-70%.

When you choose a debt collection agency, make sure to select a reputable one that’s registered with the Financial Conduct Authority. You should ask for references, and follow up on these, and ask for terms and conditions which you review thoroughly.

A final word on interest. If your customer doesn’t stick to your payment terms, you can charge interest on the overdue payment.

The UK Government states that you can charge ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract.

For example, if you’re owed £1,000 and the Bank of England base rate is 1.75%: the annual statutory interest on this would be £85 (1,000 x 0.0975 = £97.50) divide £97.5 by 365 to get the daily interest: 27p a day (97.5 / 365 = 0.267) after 50 days this would be £13.36 (50 x 0.267 = 13.356)

If you plan to charge interest on late payments, you should ideally make customers aware of that when you start working together, by putting it in your contract or terms of services so it doesn’t come as a surprise to them.

When you send invoice reminders, you can mention to your customer that unfortunately any overdue payments will incur interest, though you don’t have to charge late payment interest. It’s all about what’s best for your business relationship with the customer.

This article is for information purposes only and does not constitute legal, tax or accounting advice. You should get professional advice if you need help to understand your legal rights or to manage your accounting or tax affairs.

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