skip to main content

What if my client won’t pay? 6 tips for SMEs from a debt recovery expert

14th Nov 2022 | Debt Recovery | Muckle Collect Debt Recovery
What if my client won't pay? Tips for SMEs

Running a small business can be one of the most fulfilling ways to earn a living with creative freedom, personal satisfaction, and setting your own schedule listed among the perks. But it can also be tough, due to long working hours, constantly spinning plates, and clients who just won’t pay.

Did you know that small businesses typically spend more than a week each year chasing late payments? Research* shows that time worth £6.3bn - about 56.4 million hours - to the small business economy is spent chasing down overdue invoices annually.

In January this year, the FSB reported that 30% of business owners had seen late invoice payment over the preceding three months, with a further 8% experiencing other forms of poor payment practice.

As a result, approaching one in ten (8%) say late payment threatens the viability of their business**.

So, what do you do when your client won’t pay?

In this article Matthew Brady, dispute lawyer at Muckle LLP and resident debt recovery expert, has 6 top tips to help small businesses recover unpaid invoices without ruining client relationships.

1. Always have a contract

It’s important to manage business-to-business expectations from the start, and always have a contract. Having a contract formalises the working relationship between the parties.

We would always advise that best practice is to have a contract in place that covers clear payment terms, policy on late fees and interest, and agreed conditions before working with your client.

Even though it’s tempting to trust a business connection a properly drafted contract with payment terms that are clear and simple and protect you has the benefit of ensuring clarity should a dispute ever arise.

Whilst every business hopes that it is not the case the reality is that disputes do happen and from experience, it is often far better to manage a dispute where there is a contract in place.

2. Exercise good payment practices

Keeping on top of payments makes good business sense. Do you invoice regularly and try to keep your customers paying consistently rather than letting a big bill mount up before you get in touch?

Agreeing clear payment terms and having a clear and structured system in place aids cash flow - the life blood of every business. If your clients aren’t paying, seek to understand if there is a reason but don’t let that jeopardise your payments.

If your invoice is beyond your contracted payment terms, look to recoup invoices through an invoice recovery tool, such as Muckle Collect.

3. Maintain good client relationships

Take the time to nurture amiable relationships with all your clients. Staying in touch is a great way to stay front of mind for your clients – whether it’s a regular catch-up about how you work together, or a quick call at the end of each month to check the invoice was received.

When you cultivate healthy relationships, it can be easier to anticipate cashflow problems earlier on, and use your open line of communication to find a solution that suits both parties. 

4. Follow up fast on unpaid invoices – have a policy!

When your invoice goes unpaid, make sure to follow up promptly. An unpaid invoice may be a simple oversight – maybe a quick email can fix it, or perhaps you need to speak to someone else and a polite reminder is all it takes to find a solution. Communication is key.

You also retain the ability to use your contract if you have late payment clauses or you can seek to utilise your statutory rights of late payment fees and/or interest.

We would also suggest that you have an internal policy in place to handle overdue invoices. Sitting on unpaid invoices can severely affect your cashflow along with your credit balances. Therefore, we suggest that your policies make it mandatory for invoices to be escalated (i.e. to be recovered by a third party) as soon as they are overdue. 

5. Charge interest

When a client is late in paying, you are legally entitled to charge interest known as “statutory interest” – unless you have a contractual entitlement to charge interest in which case the contract will take precedent.

Statutory interest is 8% plus the Bank of England base rate for business-to-business transactions. If you decide to add interest on a late commercial payment, you should send a new invoice as best practice. 

6. Recover unpaid invoices with Muckle Collect legal experts

If your client has failed to make payment by the due date,  we recommend using our debt recovery service, Muckle Collect.

An easy-to-use platform run by our team of legal experts, Muckle Collect debt recovery takes the chasing out of your hands with a personable, compliant approach to payment negotiation, so you can get back to running your business.

Simply create an account, upload your outstanding invoices and apply a late fee or compensation if applicable, and submit. Our team will do the rest!

The Muckle debt recovery team has been helping businesses recover unpaid invoices for 30 years and ranked Top Tier by Legal 500 UK for the last ten.

For more information about Debt Recovery or how the Muckle Collect team can help you, please contact Matthew Brady using 0191 211 7838 or [email protected].


*Late and Unpaid Invoices - UK statistics

**FSB report Q1 2022

Share this story...