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How to deal with unpaid invoices when self-employed

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Late payment or non-payment of invoices has to be the biggest bugbear of any self-employed person’s business.  Being self-employed, running your own small business, or being a freelancer comes with many rewards and benefits such as flexibility and choosing your own clients, but it also has some negatives.  One of the biggest downsides I’ve found to being a self-employed blogger is chasing unpaid invoices. 

Having no guaranteed pay packet at the end of each working month is the one part of self-employment that makes me quite anxious.  I depend on my clients paying me on time so as I can pay my mortgage and bills on time and, of course, put food on the table and have a life with any spending money left over.  I depend on my business invoices being paid on time for my livelihood.

In this blog post I will explore what happens if a client doesn't pay an invoice.

What can I do about unpaid invoices?

Whilst late payment issues are normally quickly resolved in my experience, unpaid invoices with a lack of resolution present a much bigger problem and you may need the help of commercial litigation solicitors to resolve.

Hopefully things won’t get to this point and I have a few tricks to help prevent your invoices being unpaid.  Below I will take a look at what you can do if you have unpaid invoices and to stop them in the future.

Always invoice for work complete

Firstly, always have a system in place for your business invoices.  As soon as work is complete make sure you send an official invoice to request payment.  State your payment terms on your invoice as well as any late payment fees.

Send a friendly reminder close to payment due date

If the invoice payment deadline is approaching then send a friendly reminder.  I usually send a reminder 3 or 5 days before the payment is due.  Sometimes email inboxes fill up and things are accidentally forgotten about.  A simple reminder might be all that is needed to ensure a payment is not late.

If the payment due date arrives then send another friendly reminder to state that payment is due today otherwise a late payment fee will apply.  The possibility of paying more than the original invoice amount is usually enough to ensure payment is made that day.  No-one likes to pay a fine!

Adjust the payment date if necessary

Your client may reply to let you know that payment will be late.  Once you’ve had some experience being self-employed you can usually tell who is genuine by the tone of the email and their response time.  If someone lets me know a new payment date and it’s not too long a wait then I will just update my records and stop hassling them until the new payment date arrives!  This is all most businesses need to do in order to avoid conflict or fines: have good communication and admit when a payment will be late!

Apply a late payment fee

Under UK law business to business payments must be made within 30 days unless you have agreed otherwise when making the business contract.  Payment is legally due within 30 days of the invoice date or a late payment fee of £40 can be applied under the Late Payment of Commercial Debts (Interest) Act 1998.  You can also legally add interest and you’ll be able to find the current amount you can apply on the Gov website.  There are also plenty of free online late payment calculators to work out the exact amount for you.

If the payment due date has now passed and you still haven’t received payment then you may wish to apply a late payment fee.  If it’s a client that provides regular work and they usually pay on time then you may want to avoid adding the late payment fee and try contacting them again.  Maybe it’s a simple human error and you wish to remain in good standing with them.  At the same time, they should understand the importance of paying an invoice on time, especially to those who are self-employed.

I once added a late payment fee to an invoice of a client I had worked with several times with no previous payment problems.  They paid the late fee without quibble and sent me more work.  Don’t be afraid to know your rights and to apply them.

If you’ve got to the point of adding a late payment fee then the majority of the time this will spur them into action.

Numerous times when I’ve reached this stage I have received the original payment the same day without the late payment fees.  You can choose to enforce the fees, though you may need to take legal action, or you can choose to waiver them if the invoice has been paid fairly quickly.

What to do if someone refuses to pay you?

Very rarely your payment will not arrive by the due date and you will receive no response.  Even rarer, they may respond to you and refuse to make the payment!

Below are your options when it comes to a customer refusing to pay your invoice altogether.

Let it go and personally blacklist them

If the work can be retracted, for example if it’s an online article on your own website, and it’s a small amount of money, then you may wish to let it go and avoid the stress of taking further action.  Though it’s not the ideal solution as the non-payer will not suffer legal consequence for not upholding their end of the contract, you sometimes have to figure out if the hassle and stress of pursuing the matter is worth your time and effort.

If the payment amount is small and the work completed for the client can be reversed then this may be your best resolution.  Otherwise you may end up out of pocket, at least whilst legal proceedings take place, with no guarantee of a favourable result.

If the payment is high and the work is complete and cannot be reversed, then you may wish to pursue things legally.

If you network with others in your trade then warn others of this non-payer and blacklist them from your own business.  This means you will not work with them again.

Use a commercial litigation solicitor

If your client is refusing to pay you, you just can’t get a response or you’ve exhausted every possible avenue to get your payment then you may have reached the point to seek legal advice.  Some solicitors will offer advice for free or a small fee without you needing to hire them to take action.  You can then decide if pursuing the dispute legally is right for you and your situation.

Commercial litigation is a legal process that can be used to resolve any type of business dispute.  Hiring professional commercial litigation solicitors to act on your behalf is one option to resolve business disputes and non-payment for your services.

A commercial litigation solicitor will know the ins and outs of business laws and commercial acts.  They can advise you on the best course of action and handle everything for you.

For large unpaid invoices this is the best option to ensure everything is done legally and you get the best possible outcome.

Take them to small claims court

Alternatively you may wish to take the non-payer to small claims court in the UK.  This is a way of If the invoice amount is £100,000 or less then you can apply online to county court to claim money you are owed.  If it’s more than £100,000 you can still apply but it must be via their paper form.  If you are claiming such a large amount then it may be better to pay a legal team as mentioned above to resolve your dispute.

If the defendant (non-payer) denies owing the money then you may have to go to court.  If they don’t respond to the claim or admit they owe the money but still don’t pay, then you can get the court to order them to pay.  If they still don’t pay then you can instruct the court to send bailiffs to recover the debt on your behalf.

Final word 

Luckily there are lots of steps to take that should prevent invoices being paid late, but if things cannot be resolved amicably then there are legal steps you can take to recover the debt.