Four ways that SMEs can recover unpaid invoices

If you’ve already followed the standard procedures for recovering an unpaid invoice, you may be considering more drastic actions. Unpaid invoices are a common problem for SMEs and can cause significant financial burdens. Once 38 days have passed since the invoice due date, you have four options for debt recovery given by Sage.

Mediation

As a first approach, mediations can be effective. Essentially it involves a face-to-face conversation between yourself and your client with the assistance of a mediator. This meeting attempts to correct any miscommunication or misunderstanding and prevent further embarrassment. It can ultimately be a cheaper option than legal proceedings and can be effective.

Statutory Demand

A statutory demand is a formal letter, which clearly demands that the outstanding invoice is paid, including any interest, within 21 days. Once these 21 days have passed without reply or payment, you can then apply to a court to make the company bankrupt (for debts greater than £5000) or wound up (for debts greater than £750, but less than £5000). While issuing this letter doesn’t require a solicitor, you must comply with strict criteria to have the letter upheld.

Court Action

Court action can only be taken if the client has never disputed the invoice. Claims for less than £100,000 can be made through an easy-to-use online process. Hopefully, you’ve been documenting all communication as you’ll need evidence to confirm that you’ve made substantial efforts to discuss the situation. A number of other requirements must also be met.

Debt Collection Agency

Your last resort is to sell your debt to a debt collection or purchase agency. Third-party debt recovery agencies are a drastic option and should not be entered into lightly. Since a third-party is involved, you’ll only receive a percentage of the outstanding invoice. In addition, your relationship with your client will be irreversibly damaged. If possible, it’s best to avoid this option.

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More on debt collection and the late payments issue in the UK.