First of all, you need to determine whether they haven’t paid because they don’t want to (maybe because they don’t think you’ve delivered what you said you would) or because they can’t (because they have no money).

If they don’t want to pay because they think you’ve breached the contract in some way, they should tell you. Otherwise, you have no opportunity to rectify the problem. If Devant wrote your terms of business, they’ll say something about your customers having to notify you within a specific number of days of receiving your invoice, if they dispute it. Otherwise it’s due for payment in accordance with your terms. If we didn’t write your terms, you might not find out that your customer’s unhappy until you start chasing for payment!

If your client has a valid reason for non-payment, see if it’s something you can fix. If not, would it be fair for you to reduce the price instead? For example, if the product you’ve delivered had some scratches on its surface finish, and you can’t secure a replacement, what would be a fair discount to compensate for the scratches? Agree this by email, issue a credit note for the discount amount, and they should be able to pay the balance.

If they still don’t pay, or if they never had any reason to dispute the invoice in the first place, it’s a reasonable assumption that they’re either short on cash, or are just trying to hold onto every penny as long as possible to protect their business.

There are two options here, depending on what you think their actual financial situation is.

1. If you think they’re genuinely struggling, but with some support, could pull through and be a good client in the future, you might consider agreeing a payment plan. This way you might eventually get your money, even if it takes a while. If they go bust in the meantime, at least you’ll have received some cash (which is probably more than you’d get if you forced them into insolvency).
2. If you think they have the cash but are just delaying payment to maintain their reserves, you might want to threaten a winding up petition. Basically, the only good reason for a company failing to pay you when you’ve delivered in accordance with your contract, is because they have no cash. If they have no cash to meet their obligations, they’re trading insolvently. This is unlawful – by issuing a winding up petition, you force them to either pay up or wind up. 

You might wonder why you’d use a winding up petition for companies you believe to be solvent, while attempting a payment plan for those you’re less confident in. Basically, if a company really is insolvent, it’s likely that you’re not the only one they owe money to. If they also owe HMRC, staff, landlords, the bank… the chances of you getting anything you’re owed in an insolvency are tiny. You’ll be at the bottom of a long list of creditors. For companies that actually have some cash, though, this tool can encourage them to get their finger out and pay up. 

What if you’re up against a big client who’s not paying? That’s one for next week! Check our blog and then subscribe to our Youtube channel so you don’t miss out.