Most, if not all, businesses, regardless of the sector in which they operate, are likely to need to pursue an unpaid debt at some time. For most businesses, the collection of outstanding debts must be managed efficiently to assist cash flow.
In this blog, we reveal the most common excuses for late-payments and how you can deal with them.
This is perhaps one of the most common excuses for payment delays. Make sure you have a paper trail of when you sent the invoice and all your communications with the debtor about the outstanding invoice. These days, most businesses operate digitally, so invoices can be emailed, meaning there is always a paper trail showing that the invoice was sent.
If your debtor claims your invoice is incorrect, ask them what the errors are so that, if appropriate, you can amend the invoice and re-send it to them.
Before sending an invoice, it is important to make sure the amount claimed is right, that your details and the debtor’s details are correct, and there are no typos.
If your debtor only disputes part of the invoice, ask them to pay the amount they admit is owing whilst you investigate their complaint.
This excuse is easy to deal with. Simply ask the debtor to provide proof of payment. If the debtor is unable to provide proof of payment, it can be inferred that the debt has not been paid.
If your terms and conditions do not state a clear deadline in which your invoices must be paid, this is a common excuse which you may find yourself on the receiving end of. It is very important that all businesses establish clear payment terms to ensure they get paid on time. Make sure your debtors know when your invoices have to be paid and that if your invoices are not paid on time, interest and costs will be added to the debt.
The Late Payment of Commercial Debts (Interest) Act 1998 applies to most business to business debts and enables creditors to claim interest, compensation and costs on invoices that are paid late. If the Late Payment of Commercial Debts (Interest) Act does not apply, there may be other legislation that enables you to claim interest on invoices that are paid late. Alternatively, your terms and conditions may enable you to claim contractual interest and costs.
Unless you agreed that you would only be paid when your customer got paid, this is not a valid reason to delay payment of an invoice, and you should demand payment of the debt owed in full in accordance with your contract. You could ask the debtor to make an immediate payment of part of the debt and provide you with an exact date when you will receive the rest. This should provide you with some comfort as to whether your customer’s excuse is genuine and whether you will be paid eventually.
This excuse must be the oldest in the book but will only work for a certain period of time. If you do not receive a payment within a few days, ask your debtor to provide you with the relevant remittance advice. If the debtor is unwilling to do this, this may show that your debtor isn’t being honest and that payment has not been made.
If your debtor says your invoice cannot be paid because the managing director or finance director is away, this may be true, but it should not stop your invoice from being paid. The ability for businesses to make payments should not stop just because the relevant person is absent. Ask the debtor if there is a way to resolve this issue. For example, can someone else arrange an electronic transfer to pay the debt owing to you? If not, ask when the relevant person will be back and be able to pay your outstanding invoice.
The process of changing banks should not be a long, drawn-out process. Ask your debtor for the exact date when the switch will happen and, therefore, when you can expect payment.
Whilst this may be true, it is important not to just accept what your debtor is saying. Ask the debtor for documentary evidence the company has entered liquidation.
It is also worth checking the debtor’s filing record on the Companies House website, which will provide the relevant details if a company has entered administration or liquidation. If your debtor claims to have entered a formal insolvency process, ask them which insolvency practitioner is dealing with it.
You can then contact the insolvency practitioner with details of the debt owed. A specialist debt recovery solicitor can assist with this process if required.
If your debtor says they cannot afford to pay you, there may still be some options open to you. Try and find out when the debtor will be able to pay you. Often they will tell you they expect to be able to pay you in the next few weeks. You may also be able to agree to an instalment plan with the debtor if they need time to pay.
Make sure that all your conversations with the debtor are recorded in writing in case you need to refer to them in the future.
If your debtor is refusing to pay you, they may have a valid reason for doing so. For example, the debtor may believe that the goods or services provided are not of satisfactory quality. You should ask your debtor why they are refusing to pay you and also whether they are prepared to pay part of the debt. It is important to keep written records of all conversations with the debtor because these will be needed should legal action be required. Once you have this information, contact a specialist debt recovery solicitor who will be able to assess the situation and advise you on the next steps. While some disputes are genuine, it should be noted that playing the “dispute card” is a common tactic used by debtors looking to buy themselves some time.
If you would like further information about how we can help your company recover its business debts, please do not hesitate to contact a member of our Business Debt Recovery Team below.