Unpaid invoices are a common problem for many SMEs. While a late payment might seem like a minor issue at first, it can quickly affect your cash flow and make it harder to manage day-to-day business costs.
If you are chasing unpaid invoices, it’s important to understand what steps you can take to resolve the issue and when legal action may be appropriate.
Why unpaid invoices are a serious issue for SMEs
For a small business, even one outstanding invoice can have a noticeable impact. When payments are delayed, it can disrupt cash flow, delay your own payments, and create unnecessary stress.
Unlike larger organisations, SMEs often rely on timely payments to stay stable. That is why having a clear process for chasing unpaid invoices is so important.
First steps to take when chasing unpaid invoices
Before considering legal action, it is usually best to try resolving the issue directly. Start by checking the invoice number, payment terms, and due date. It may be that the payment date has simply been missed or overlooked.
You can then:
- Send a polite reminder by email, this typically prompts resolution and no further steps are needed
However, for instances where there is a lack of response or payments are growing more urgent:
- Follow up with a phone call
- Ask if there are any issues delaying payment
In some cases, agreeing a payment plan can help both sides move forward. Keeping communication clear and professional can often resolve the situation without the need for escalation.
When an invoice becomes overdue
An invoice is typically considered overdue once it has passed the agreed due date. Many businesses work on 30 days payment terms, but this can vary.
Once an invoice becomes overdue, it is important to act promptly. The longer an invoice remains unpaid, the harder it can become to recover.
We would also recommend taking note of how many days has passed since you were overdue a payment can also help you decide when to take further action.
What are the Legal options for recovering unpaid invoices?
If informal steps do not work, there are various legal options available to help recover unpaid invoices.
These may include:
- Considering mediation to help resolve the issue with your client in a structured and cost-effective way before formal legal action is taken
- Charging payment fees or interest on late payments
- Sending a formal letter before action
- Starting legal action through the courts
If payment is still not made, further enforcement action may be necessary. This can include issuing a County Court Judgment (CCJ), serving a statutory demand, or, in more serious cases involving companies, presenting a winding up petition. These steps can have significant financial and reputational consequences for the debtor and are often effective in prompting payment.
The right approach will depend on the amount owed, your relationship with the client, and how long the invoice has been outstanding. Taking early advice can help you choose the most effective option and avoid unnecessary costs.
Charging interest on overdue invoices
In some cases, businesses may be able to charge interest on overdue invoices. This is often linked to the Bank of England base rate and can apply where payment terms allow it.
Charging interest can encourage quicker payment, but it is important to make sure this is clearly set out in your payment terms from the start.
How Can AFG Law Assist with Recovering Unpaid Invoices?
At AFG Law, we understand that unpaid invoices can place significant strain on SMEs, affecting cash flow and day-to-day operations. Recovering what you’re owed doesn’t have to be stressful, our team guides small businesses through every stage of the process, helping you understand your options and choose the approach that works best for your situation.
We can support you by:
- Reviewing your outstanding invoices and payment terms to ensure your case is clear and just
- Sending professional reminders and negotiating payment plans where appropriate
- Advising on charging interest or late payment fees in line with legal regulations
- Assisting with collection agencies or formal legal action if necessary
- Providing clear, practical guidance throughout to protect your business relationships and reputation
Our focus is always on achieving practical, proportionate solutions that help you recover what you’re owed efficiently, while keeping your business operations running smoothly.
To speak to a solicitor about recovering unpaid invoices, contact AFG Law today via email at enquiries@afglaw.co.uk or call 01204 920105.