If you’re running a small business, chances are that you have or will come across the occasional client who has an unpaid invoice that has been outstanding for an unacceptable amount of time.
Often, it may be that the invoice has been overlooked, or that other things have got in the way. In which case, a friendly chat and a couple of chaser emails can solve the problem. But what do you do when numerous calls and messages don’t work? It may seem extreme, but starting the process of taking a client to a small claims court may be the way to go.
If you haven’t already, make sure you have good processes in place for chasing up clients. You can read my guide to chasing up late-paying clients for tips and advice.
But if you’re really struggling to extract payment, read on for the correct process.
Please note: I am not a solicitor and you may want to seek legal advice for any issues you are having in collecting outstanding debts. This is intended as a guide only, to help make you aware of one of your options.
1. Include a Deadline
It’s important that your invoice includes a deadline for payment so that you have a baseline for how late a payment might be. If you didn’t put an deadline on the original invoice, make sure you do on any future statements or email reminders you send out. This also helps your client, as it gives them a clear indication of when payment is expected.
2. Send Email and Phone Reminders
It’s worth both emailing and telephoning to remind your client that an invoice is overdue. Email is most useful for keeping a record of correspondence, but speaking to an actual person over the phone is also a good prompt. Whenever you do speak over the phone, remember to follow up with an email that gives an outline of the call so that you still have that written record. You’ll want this when it comes to making a claim.
3. Check Your Invoice Terms
You should have a set of invoice terms that outline any extra charges you make for late payments, actions you take for overdue invoices, and a time frame for taking those actions. These could be on the invoice itself or on a contract that you’ve signed with the client. Stick to the deadlines outlined, both to show the client that you’re serious and to give them fair and ample opportunity to pay.
4. Ensure Your Client Can Pay
If your client simply doesn’t have the money to pay you then, unfortunately, taking them to a small claims court is unlikely to do much good. It’s worth doing a bit of investigation first to find out if the client is bankrupt or in financial difficulty. If so, you may unfortunately just have to write off the unpaid invoice as a bad debt.
However, if the client is just not paying you and you’ve exhausted all the above measures, it could be time to start more formal proceedings for taking a them to a small claims court.
5. Decide Whether it’s Worth it
Firstly, make sure it’s worth the time and effort to take this client to a small claims court. If the amount is very small, you may want to just write off the debt and terminate any further work with the debtor. However, if you feel it’s worth the money, then you can usually take someone to a small claims court for up to £10,000.
You should also consider the reasons behind the lack of payment. Is there a dispute as to whether your work/product wasn’t what was promised, for example? Taking a client to a small claims court doesn’t mean that you’ll win – there’s always the possibility that things will be decided in the client’s favour.
6. Send a Notice of Intention
Let your client know that you intend to take them to a small claims court. Explain why, how you have tried to contact them and how late the payment is. You should also give them a final option to pay before you start official proceedings. Give a decent amount of time to take action (a ‘next day’ deadline may mean they don’t even pick up your email in time), and remind them of the amount overdue (including any interest).
If you want to add an extra level of seriousness, ask your solicitor to send this letter, though you can just as easily do it yourself.
The message can be sent either by post or by email. Remember to get proof of postage.
A lot of the time, this is usually as far as you need to go, and you will receive payment pretty quickly after that. However, be ready to follow up on your threat if you need to.
7. Make a Claim
You can download a claim form on the Government website. There are a couple of forms depending on the type of claim you are making, so make sure you select the correct one. Fill this out in full (or have a solicitor do it) and then send the form to the County Court Money Claims Centre at the given address.
There will be a small court fee to pay, depending on the size of the debt.
8. Notify the Client
At this stage, you may also like to let the client know that you have done this, just so they know that you’re deadly serious and intend to fully follow through.
9. Go to a Court Hearing
If the client denies that they owe you the money, then you may need to go to a court hearing.
At a hearing the judge will decide, on the day, whether you are entitled to the money. You’ll also get a letter confirming the decision and the client will order the debtor to pay, if necessary.
You can also ask the court to order them to pay if they ignore your claim or admit to owing you money but still don’t settle the debt.
If the court decides in your client’s favour, you can appeal the decision within 21 days of it being made.
10. Take it Further
If there’s still nothing at this point, then you can ask the court to take further action and find out how much the client can afford to pay. After that, you can decide whether to go ahead with one of four options, ordered by the court:
- Send bailiffs
- Have money deducted from wages
- Freeze assets or money in accounts
- Charge the debtor’s land or property
Hopefully you’ll never find yourself in the position of having to go to a small claims court. Having a good, clear process for collecting payments will help avoid issues and, when it doesn’t, there are further options available. Make sure you keep a log of all correspondence relating to invoice payments, and be willing to follow through with the appropriate steps.
If you need help chasing up invoices, get in touch to find out how I can help.