So you’ve got an unpaid invoice. What do you do?
In an ideal world, clients would pay the full fee on time for every job. But here at Impact Brixton, we often hear from our community of freelancers, entrepreneurs and small businesses that this is simply not the case. The experts at Hello Bonsai found that a whopping 29% of invoices are paid late, which is super frustrating when you’re trying to plan your cash flow!
The beginning of a new year is a common time to find yourself chasing invoices that weren’t paid before the Holidays. But don’t worry – there are ways to go about chasing your payment while still maintaining a good professional relationship with your client. This blog post will explain what to do if you’ve sailed into 2024 with an overdue invoice. It also includes a handy overdue invoice reminder template for you to use!
What’s an Overdue Invoice?
First things first, we need to make sure we know what an overdue invoice is – because what feels overdue to you when you’re waiting on your payment, might actually still be within its terms. So when is an invoice overdue in the UK?
An overdue payment refers to a payment that has not been made by its due date. In the UK, unless you agree on a different payment date, the standard due date for invoices to be paid is within 30 days of receiving your invoice or the goods or service. When an invoice or bill is not paid within 30 days, or within the agreed-upon timeframe, it is considered overdue.
What To Do When an Invoice Isn’t Paid
So you’ve got an unpaid invoice. What to do now? There are a few steps you can take, including sending out a polite reminder email using the template we’ve provided to show you how to ask for that unpaid invoice to be paid asap. Here are your options for how to collect an unpaid invoice.
1. Send Reminders
The past few years have been a rollercoaster for freelancers – but it hasn’t been easy on companies, either. That’s no excuse for a late payment, but it could simply be that your invoice has fallen through the cracks at a particularly tumultuous time for business in the UK. A polite and friendly reminder email could be all it takes to get your payment processed.
We’d suggest emailing the day after the invoice is due. If this doesn’t resolve the issue, we’d suggest emailing on a weekly basis, clearly communicating the overdue statues and reminding your client that late payments incur late fees.
2. Add a late fee to your invoice
Adding a late fee can be a huge incentive for your client to get your invoice paid – because the longer they delay, the more money they owe you!
The invoice late payment fee in the UK is 8% plus the Bank of England base rate for business to business transactions. Check out this Government webpage for a handy example of this formula in action and further information on the fees you are entitled to claim on your unpaid invoice in the UK.
Remember, though – you can’t claim statutory interest if there’s a different rate of interest in a contract, so it’s worth checking your contract to double check the terms before sending your reminder email!
3. Establish a payment plan
A great way to maintain a really strong relationship with your client while also making sure that you get the payment you’re owed is to establish a payment plan.
It might be that your client is facing financial challenges, and they might need just a little more time to pay your fee. If you are able, consider working together to establish a reasonable payment plan. This can help in securing at least a partial payment while also accommodating their situation.
It’s worth remembering this when considering future work, though. If your client is experiencing financial difficulty to the point where they’re struggling to pay invoices, they may not be a great client to work with again in future.
4. Seek legal advice if necessary
Unfortunately there may come a time when you need to seek legal advice on your overdue invoice. There are unpaid invoice small claims court services in the UK, but it’s worth really considering whether this is your best option.
Taking legal action probably won’t work if your client literally doesn’t have the money to pay you, as even if they are ordered to pay, enforcement is more or less impossible if the funds simply aren’t there.
A short appointment with a solicitor or legal adviser can give you a better idea of what legal action might work in your situation. In an ideal situation, your initial letter indicating your intention to take legal action will prompt your client to pay you, and you won’t need to take your case any further.
If you decide to go through with legal action, there are a few things you’ll need before you can make a claim. There are quite a lot of steps, but don’t worry – you can use this really useful Government webpage, which explains the process in detail.
Overdue Invoice Reminder Template 1
It can be difficult to find the right words when you need to remind a client about a late invoice but you really want to maintain a good relationship with them. So we’ve put together a handy template you can use to be polite but firm, helping you to get paid without damaging your partnership with your client. Here’s a template that we suggest you use as soon as you realise that your payment is overdue. Feel free to amend it as you see fit – this is just a starting point!
Dear [Client’s Name],
I hope you are well! It has been really great to work with you, and I hope we can collaborate again in future.
I have noticed that the invoice I submitted to you on [date], [#Invoice Number], remains unpaid and is now overdue. I would really appreciate it if you could settle this outstanding amount as soon as possible to avoid any disruption to our ongoing services.
Here are the payment details again for your reference:
Invoice Number: [Invoice Number]
Invoice Date: [Invoice Date]
Due Date: [Due Date]
Total Amount: £[Total Amount]
Payment can be made through [Payment Method Details].
If you have already made the payment, please accept my thanks and kindly disregard this reminder!
However, if you are facing any challenges or have any concerns regarding the payment, please don’t hesitate to get in touch. I completely understand that unforeseen circumstances may arise, and I am really open to discussing any alternative arrangements that can be mutually agreed upon.
Thank you so much for your prompt attention in settling this outstanding invoice. I really value our partnership and appreciate your help in resolving this matter!
Kind regards,
[Your Full Name]
[Your Position]
[Your Company Name]
[Your Contact Information]
Overdue Invoice Reminder Template 2
If that first reminder didn’t lead to your invoice being paid, you’ll need to send a follow-up. This one is still professional, but slightly firmer in outlining the consequences of a late payment. Our priority at all times is to help you maintain your good working relationship with your client. So consider using this template and amending to suit your individual needs. Again, this is just a starting point!
Dear [Client’s Name],
I hope you are well! I just wanted to remind you that the invoice I submitted to you on [date], [#Invoice Number] still remains unpaid and overdue.
As a result, a late fee of £[Amount] has been added to your balance, [as per the terms in our contract / as per the interest on late commercial payments chargeable in the UK]. Please see below the updated details of the overdue invoice, including the added late fee and updated due date:
Invoice Number: [Invoice Number]
Invoice Date: [Invoice Date]
Due Date: [Due Date]
Total Amount: £[Total Amount]
Late Fee: £[Late Fee Amount]
Here are the payment details again for your reference:
Invoice Number: [Invoice Number]
Invoice Date: [Invoice Date]
Due Date: [Due Date]
Total Amount: £[Total Amount]
Payment can be made through [Payment Method Details].
If you have already made the payment, please accept my thanks and kindly disregard this reminder!
However, if you are facing any challenges or have any concerns regarding the payment, please get in touch as soon as possible to prevent further escalation. I am open to working with you to find an alternative payment plan, and appreciate your help in resolving this matter.
Please respond to this email confirming that you have received the updated invoice and that your payment has been sent.
Kind regards,
[Your Full Name]
[Your Position]
[Your Company Name]
[Your Contact Information]
Unpaid Invoice Debt Collection Letter Sample
If you’ve added a late fee and sent previous reminders but your invoice still hasn’t been paid, you might be considering taking legal action. An official notice of your intention to take legal action is often more impactful coming from a solicitor, but there’s no harm in sending your own email first. Consider using the following template, modifying it to suit your individual purposes.
Dear [Client’s Name],
I hope you are well! Unfortunately despite previous reminders, the invoice I submitted to you on [date], [#Invoice Number], with an original due date of [due date] still remains unpaid and overdue
Unfortunately if this invoice is not settled by [new due date], I will be forced to pursue legal action to claim the outstanding amount. Please accept this letter as written notice that your outstanding invoice will be passed onto my solicitor if it is not settled by the date indicated.
Invoice Number: [Invoice Number]
Invoice Date: [Invoice Date]
Due Date: [Due Date]
Total Amount: £[Total Amount]
Late Fee: £[Late Fee Amount]
Here are the payment details again for your reference:
Invoice Number: [Invoice Number]
Invoice Date: [Invoice Date]
Due Date: [Due Date]
Total Amount: £[Total Amount]
Payment can be made through [Payment Method Details].
If you have already made the payment, please accept my thanks and kindly disregard this reminder!
However, if you are facing any challenges or have any concerns regarding the payment, please get in touch as soon as possible to prevent further escalation. I am open to working with you to find an alternative payment plan, and appreciate your help in resolving this matter.
Please respond to this email confirming that you have received the updated invoice and that your payment has been sent.
Kind regards,
[Your Full Name]
[Your Position]
[Your Company Name]
[Your Contact Information]
What to Do If Your Client Can’t Pay
If you’re certain that your invoice will never be paid due to your client’s financial difficulties, your best bet is to categorise your outstanding invoice as a ‘bad debt’. To do this, you can designate the debt as either:
A business cost on your Company Tax Return – seek assistance from an accountant or tax adviser for guidance if needed.
OR
A business expense on your Self Assessment Tax Return if you operate as a self-employed individual, either as a sole trader or in a partnership.
A question we often get asked is can unpaid invoices be written off? The good news is that the answer is yes – if you categorise them as a business cost or business expense, as explained above, you can write off your unpaid invoices. Though we would always recommend seeking professional advice from an accountant or tax adviser to ensure that you comply with the relevant tax regulations.
FAQs
Are unpaid invoices tax deductible?
Yes! In the UK, unpaid invoices can be considered as a tax-deductible expense if they are deemed as ‘bad debts.’ When a debt is recognised as bad, it means that there is little or no chance of recovering the amount owed.
Here’s how to claim the unpaid invoice as a tax deduction in the UK:
Limited companies should include the unpaid invoice as a business cost on your Company Tax Return.
Self-employed individuals, sole traders or partnerships should treat the unpaid invoice as a business expense on your Self Assessment Tax Return.
We’d advise you to seek professional advice from an accountant or tax adviser to make sure that you comply with the relevant tax regulations. They’ll be able to guide you through the specifics of claiming bad debts and help you maximise any potential tax benefits.
Do unpaid invoices count as income?
No. In the UK, unpaid invoices do not count as income. This is because income is typically defined as money that has been received – so unpaid invoices do not count as income until they are actually paid.
Therefore, until an invoice is paid, it is not considered income for tax purposes. If you haven’t been paid for an invoice, follow the steps above to remind your client. And if you’re sure that your client is unable to pay, consider them as bad debts for tax deduction purposes, as explained earlier. Again, it’s always advisable to consult with an accountant or tax professional for personalised advice based on your specific business situation.
How do you account for unpaid invoices?
In the unlucky instance that your invoice remains unpaid, you need to write it off so your accounts reflect this lost income. This is crucial if you’ve already paid tax on the income that expected to receive before the invoice went unpaid, as writing it off in your accounts allows you to claim the tax you have paid back from HMRC.
Following the steps and using the templates included above should help you avoid this outcome. The ideal eventuality is always to get the invoice paid – even if it’s late!
Conclusion
It can be frustrating and stressful when invoices aren’t paid on time. When chasing your client, it’s essential to strike a balance between securing your payment and preserving a positive professional relationship. The advice and templates above offer an effective way to secure your payment without compromising your business relationships.
While late payments may present challenges, they are not insurmountable. By staying informed, proactive, and maintaining open communication with your clients, you can navigate chasing your payment without hurting your reputation or damaging your relationships. For more advice on invoicing as a freelancer, check out our blog!
