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Men in Suits
  • Directors' Institute

How to Handle Unpaid Invoices

Unpaid bills can be a major issue for organisations. Industry leaders have worked relentlessly to encourage larger corporations to adopt better payment procedures so that small businesses and startups can be paid on time, increase cash flow, and capitalise on more opportunities faster.

According to Xero, an accounting software supplier, small businesses waited an average of 30.6 days to be paid by their clients in September 2022, the longest payment period in two years. This is a rising issue for small firms, and it can put them in considerable cash flow trouble during a period of weak sales growth due to energy and cost of living problems.

The plague of late payments

In the run-up to the coronavirus pandemic, the Federation of Small Businesses' 2019 Fair Pay, Fair Play campaign, which called for an end to the late payment crisis hitting small businesses throughout the UK, made significant success. As a result, the government has committed to strengthening the Quick Payment Code.

Companies that sign up for the Quick Payment Code (PPC) are required to pay small businesses within 30 days, which is half the time specified under the prior code. To discourage non-compliance, the government will highlight people who violate the regulation.

How to Deal with Late Payments

Because cash flow is the lifeblood of a business, when funds run out, it can have a negative impact on the company's finances and operations. Late or missed payments can have major consequences for businesses that rely on this money to pay employees, rent, and other important expenditures. Sharon McDougall, a Scottish Debt Help specialist at Scotland Debt Solutions, demonstrates how firms can successfully recover company debts by targeting late payers.

Payment Flexibility - To provide more flexibility, you can negotiate payment plans, extensions, and delayed payments with customers. Although this kind of flexibility may entice clients, it is critical to understand where to draw the line before the company's finances suffer significantly. Valuing loyalty by providing assistance through difficult times is likely the key for firms that naturally attract a large percentage of repeat consumers.

Payment demands and reminders - At the first evidence of a late or missed payment, send a reminder to prompt the consumer to make payment. While some customers may have forgotten to pay, a portion may be in financial trouble, which may prevent them from making a timely payment. Reminders can help clients organise their finances and call attention to payment terms, such as a payment date or late payment interest if you chose to charge it.

If the payment reminder is unsuccessful, a final payment demand may be made, which cites a higher level of urgency and specifies a timetable for payment, such as seven or ten days. This is usually the final reminder before actual court action is taken, as specified in the demand letter.

Court action - If the last demand letter fails to elicit payment, court action in the form of a County Court Judgment may be unavoidable. A County Court Judgment is a formal court ruling that money is owed. According to a County Court Judgment:

  • the amount owed

  • how to pay (in full or in instalments)

  • the payment deadline

  • who to pay

At this point, the debtor might request that the terms of the Judgment be changed or arrange a payment plan. If the debtor fails to make payments, the debt may be retrieved by bailiffs or withdrawn directly from the debtor's salary in installments. If the complete sum is not paid within one month, a County Court Judgment will be recorded on their credit report.

Expert in debt collecting

If you believe the business is out of funds and so insolvent, you may file a winding-up petition as a last resort. Winding up a business entails petitioning the court for a winding-up order in order to close it down. Throughout the liquidation procedure, firm creditors will be paid in the sequence specified by the Insolvency Act of 1986.

If your company's cash flow is declining, it may be time to hire a debt collector to help you get your balance sheet in order.

Our Directors’ Institute- World council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out in an efficient manner helping you to make a significant contribution to the board and raise corporate governance standards within the organization.

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