You’ve invoiced your client correctly, but payment still hasn’t been made. Here, a debt recovery expert looks at the options available to contractors faced with late payment problems.
In a follow-up to his previous article on how to correctly submit invoices, Adam Home from Safe Collections says that if your invoice has been submitted in accordance with any contractual provisions and you still aren’t paid on time, the first thing to do is not panic.
Here he looks at the different options available to contractors and small business owners faced with late payment issues:
Pick up the phone
It may seem old fashioned in the 21st century, but calling someone is still the quickest way to get an answer to a query. So, start by getting in touch with the contact you should have been provided with when you took on the job.
Sticking with the five W’s you need to know the following:
- Who do you need to speak to?
- What is the issue and what can be done to resolve it?
- Where can the person you need be reached?
- When can you expect payment once any issue is resolved?
If you have any discussions regarding payment, it is always a sound idea to summarise any conversations by email and keep a paper-trail “just in case”. Continue to provide the contracted services and chase up your payment as often as necessary. Be polite but firm and remember one missed or late payment is unlikely in and of itself to constitute a breach of contract so, don’t do anything rash.
What happens if I still haven’t received payments, and have exhausted my efforts?
If despite your best efforts, your client or agency won’t make the payment, or worse still, you have yet another invoice unpaid then you need to seriously consider your options moving forward. Taking formal action to recover the debt will likely necessitate terminating the contract if it is still in place, but in our experience, these situations normally occur towards the end of a contract when your particular skill set is no longer required.
If the contract is still ongoing and you have one or more invoices outstanding and you can’t resolve the issue, you should consult your contract with regards to termination and if necessary take legal advice on the same. It is highly unlikely an agency or end client will want to source a new contractor part way through a gig, so you may be able to use the threat of ending the contract to leverage payment.
If that doesn’t work then you have three options open to you as a contractor, if invoices remain unpaid at the end of the contract.
Option one – Use a reputable debt collection company
Debt collection agencies (DCAs) exist for a reason and whilst that reason may not be particularly welcome to most business owners, having someone you can trust to advise you on the best way to proceed can be invaluable. Typically a DCA will offer a “no win no fee” service to recover unpaid invoices with a small percentage (usually in the region of 5-15%) payable if they are successful.
A DCA will typically contact your debtor and work to recover the balance as swiftly as possible. In fact, often the involvement of a DCA is all a reluctant payer needs to sit up and take notice. If not, the agency will be able to increase the pressure both legally and financially, with the threat of additional charges under UK late payment legislation, or by placing the account with their partner solicitors for legal action.
Do look for an agency that has been established for some time, not just one that has x years of “experience”. You should also avoid any agency that requires any advance payment or membership fees or looks to tie you into a binding fixed-term contract.
If in doubt, try and seek a personal recommendation from your accountant, another contractor or professional body such as IPSE.
Option two – Use a solicitor
As with DCAs, solicitors fulfil a vital role in the business ecosystem, but their involvement doesn’t come cheap. Unlike a DCA, most solicitors will charge by the hour for the work they do and they expect their bill to be paid irrespective of whether you win or lose your claim.
Most solicitors will issue what is called a Letter Before Action (LBA) for a nominal sum; this is a formal legal demand for repayment of the money and is a pre-cursor to County Court action. If the demand is ignored your solicitor will then seek to issue proceedings in the County Court for recovery of the funds. If the case is undefended this process is relatively simple.
But if the claim is defended, then your solicitor will charge you by the hour to refute the defence and progress your claim. This can be financially punitive if the value is under the £10,000 small claims limit, and any solicitor’s costs you incur are generally not recoverable in a small claim. If the amount is in excess of the small claims limit, these fees are theoretically recoverable along with the debt balance if the debtor subsequently makes the payment.
As with choosing a DCA, make sure you pick a practice well versed in commercial litigation and debt recovery and one that understands your role as a contractor. Whilst “high street” solicitors may offer debt recovery services, some may struggle if the case is defended and involves more than the sale of goods or basic services.
Option three – Issue proceedings “in-house”
Unlike the above options, issuing proceedings yourself in the county court insulates you from incurring any direct costs for debt recovery or upfront legal fees from a solicitor. The flip side of this is that you are entirely responsible for seeing the case through to completion and you will spend time you could be devoting to securing new business, trying to get paid for old business.
In addition whilst some very basic advice is available from the courts or online being a litigant in person carries its own not insignificant risks. If a defence is filed or another action is taken to stymie your claim, you will be left to manage and pursue the claim in accordance with the court’s direction. This is no easy task for a layperson and may well take up a considerable amount of your time in research and preparation.
You need to carefully weigh up the potential initial savings on legal or solicitors fees against the loss of your time and potential financial risks involved in pursuing a court case without qualified legal support.
I’m worried about falling out with my client, might they not renew if I take action?
In our view, a customer pays, but a good customer pays on time and in full. Yes, your client or agency may decide not to renew your contract if you play hardball with your money. But when the alternative is waiting for weeks or potentially months to receive payment then the real question is do you really want to stay with a client you have to chase for payment?
Further Resources
Take a look at how to make sure a new client pays on time to make sure you have all the correct invoicing information when you start a new job.
You can access some late payment letter templates from the Safe Collections website.