From late payments to refusal to pay invoices, a reduction in cash flow can threaten your business operation and may leave you unable to pay your own outgoings.
Often, the importance of specific clauses in contracts relating to debt recovery (but not necessarily limited to debt recovery) can be overlooked until it’s too late. Having clear terms and conditions on your process of recovering unpaid invoices may put you in a much stronger position.
It’s likely that you are currently in one of two situations. You are either taking proactive, preventative measures so you have a clear process in place if an invoice is not paid, or you need to react to a debtor that has not, or refuses to pay.
Here, we explain common areas of conflict and how to avoid them
Clarity in T’s & C’s
When creating contracts, the terms and conditions should be easy to understand, while being comprehensive enough to explain all aspects of the agreement you are entering into.
Depending on the service or product you offer, it may make sense to have standard terms and conditions, but in other instances, tailored conditions of business may be required or may be of more help.
You can consult a corporate lawyer for advice on this, who can also ensure your T’s & C’s are legally binding. Keeping a record of all contracts entered into across your business will ensure that you can consult them if anything starts to go awry.
Clarity on the turnaround for payments is paramount.
Each party may have different payment terms agreed with others that they work with, such as 30 days or 90 days, some even 7 days.
Because of this, being explicit in setting out your payment terms in the contract and ensuring the other party understands this from the outset may lessen any risk of them missing such deadlines.
For uniformity across your business, it is probably best to have the same payment turnaround time so that there is less room for confusion as to whether or not a payment is late, or whose term should be relied on to avoid an issue as to whose terms are operative.
It can help to include clauses in contracts where part of the payment is taken at the beginning or the middle of the arrangement, with a final payment on completion.
As well as spreading the costs for the client, it means that you are not out of pocket. Plus, if you don’t receive any of the interim payments, you can halt work until paid.
You may also consider setting up a standard process of chasing the payment. This would enable you to send a gentle reminder before taking further legal action, in case it was an honest mistake. After this, you could consider including a late payment charge.
If there are to be additional fees for missed or delayed payments, make it clear in the contract from the start.
Taking Legal Action
If you are in the unfortunate position of needing to take further action due to unpaid invoices, perhaps this is what you could do, in order:
- Invoice clients as normal
- Chase missed payments
- Pause all work
- Send a final notice
For further detail on this you can read our article on debt recovery for businesses.
Contact a Solicitor
From the initial drafting of the contracts through to disputing payment terms or recovering money you are owed, our cross-departmental specialists can help.
Our corporate team can help with the proactive creation of your watertight terms and conditions. Our debt recovery solicitors can assist with the dispute.
Whichever team you need to speak with, get in touch using our contact form or give us a call on 0161 969 3131 and we will be happy to help.