Business cash flow relies on clients paying invoices on time. Therefore, when clients either cannot or refuse to pay, it can impact the business financially and damage client relationships. The debt collection process aims to resolve the situation as efficiently and easily as possible.

Responding to unpaid invoices internally

If your client has not paid their invoice within 30 days of issuing it, you should begin to query it.

Firstly, check there has been no error internally in issuing the invoice. Check your company sent the right amount to the correct address and you have followed the terms of your contract.

Next, you should contact the customer. Discuss the unpaid debts and ask the client why they have not paid. If they dispute the invoice and you cannot reach a compromise, seek legal advice or consider alternative dispute resolution. If they have a cash flow problem and cannot afford to pay, consider arranging a payment plan.

Keep detailed records of your contract, invoices, and correspondence with the client. This evidence could be important if you escalate the matter to county court.

Commercial collection agencies

If 60 days pass and the debtor has not paid the invoice, contact a commercial debt collection agency. They will communicate with the client on your behalf, review the contracts, and arrange repayment.

The creditor or an agency can send the client a business debt collection letter. It encourages the client to pay the debt and outlines the amount owed and when. The letter emphasises that if the client does not pay their debt by the deadline, the creditor will pursue legal action.

If you cannot resolve the debt, a debt collection agency can help you to initiate legal proceedings.

Legal debt collection services

Taking unpaid invoices to small claims court should be a last resort and to resolve significant amounts of debt. A judge will review the case before deciding on the appropriate action to take.

If you are successful, the debtor will likely have to pay off the debts and pay interest. They may also cover part of the legal fees. If the client continues to avoid payment, the court may sent debt collection bailiffs.

Visit the HMRC website to learn more about debt recovery law. At J Sweeney Accountants, our accountancy professionals can help you manage your business finances. Call 01604 950034 or email [email protected] for more information.