At the end of 2019, research showed that 20% of small businesses in the UK were failing to reach their 1st year anniversary. Over three quarters of these businesses attributed their failure to a lack of cash-flow.

This information may come as a shock – or, if you’re a business owner who regularly

chases payment from multiple customers, it may not surprise you at all. Effective cash-flow management is a fundamental building block to business success – unfortunately, it isn’t always as straightforward as it should be.

We all know how it goes: you send the customer an invoice, the period of time in which they have to pay passes, several reminders are sent either by you or your accounts team… to no avail. Excuses are made and the invoice remains unpaid.  According to the Federation of Small Businesses (FSB), 61% of larger businesses and 37% of smaller firms run into cashflow difficulties from late payments.

But when is the right time to get your lawyer involved? The last thing you want is to lose a customer, but there’s also little value in a customer who doesn’t pay. Here are the key signs it’s time to take legal action:

1. This isn’t the first time they’ve not paid

Every now and then, you will come across customers who deliberately delay paying you for as long as they can possibly put it off. The softer you are, the more likely they are to continue. In future, they will see a due date as a moveable, or even negotiable, commitment.

Bad paying customers make a habit of paying invoices long after they are due, if at all. Has the customer been reluctant to negotiate payment schedules? Are they hard to get a hold of? Are they already getting in excuses early – e.g. complaining about services or contracts?

Perhaps they’ve built a reputation of paying late, leaving your business struggling to budget for the future. If it’s looking likely that they’re about to play the “what invoice?” card again, call your lawyer – even if it’s just to send a letter of action and let them know you’re serious.

2. You’ve exhausted other avenues

There’s no need to go from zero to one hundred – if you’ve only sent one chaser email and haven’t heard back, ask your accounts team to get on the case. If email attempts have been ignored for 10 days, a phone call is essential. Remain friendly but be firm – you have every right to request the money you’re owed.

If the phone call brings to light financial difficulties the customer is experiencing, offer to be flexible – a payment plan isn’t ideal for you, but in some cases, it may be the only way. If, after these attempts, the customer still hasn’t budged, it’s time to take action.

3. It’s hampering your ability to grow

For a small business with big ambitions, an unpaid invoice can be the blockade that prevents the company from hiring, from moving into a new office, from purchasing essential equipment.

While you may have enough working capital to keep the lights on, a sizeable debt will stand in the way of growth if action isn’t taken early enough. If your business is being stifled by a commercial debt that is long overdue, it’s time to call in the help of a trusted debt recovery team to take action.

Remember, you have a statutory right to add interest to unpaid invoices (8% over the Bank of England base rate per day for B2B transactions) and claim debt-recovery costs should it get to this stage.

If you apply interest, always ensure to send a new invoice, detailing interest charges. Telling a customer that you plan to add interest can actually prompt them to pay the original amount owed, but it may also lead them to terminating the relationship.

4. The customer is refusing to pay

A late payment is one thing. When a customer disputes a payment due to dissatisfaction with the final product or quality of service, it leaves you between a rock and a hard place.

This is where clarity in contracts, specifically on deliverables and timescales, is critical as a record of what the customer expected when committing to the purchase. If you can show in writing that your contractual obligations have been fulfilled, they won’t have a legal leg to stand on. Tread carefully and get in touch with a debt recovery solicitor to help you navigate the situation and recover the debt.

At 360 Business Law, our debt recovery lawyers proudly help organisations receive the payment they deserve from their debtors. Whether you need a letter before action template for bespoke advice for chasing an unpaid invoice, we’re here for you.

Court action should always be the last resort, and our team will strive to secure monies owed through more cost-effective means.

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