Unpaid invoices are a very unpopular topic, because nobody likes to run after bills. However, for many companies they are also part of the problem, because it happens again and again that customers do not pay their invoices. In this article, we show you what you can do in such cases to get your money as quickly and easily as possible.
Unpaid invoices: Meaning
Unpaid invoices are open invoices that are overdue. This means that a customer has not yet paid the amount owed and the deadline on the invoice has expired. In such a case, it makes sense to send a payment reminder as soon as possible so that you do not have to wait too long for payment.
If a company has many unpaid customer invoices, this can put a strain on liquidity because it has already made advance payments and is now waiting for revenue. As soon as the invoice deadline has passed and payment has not yet been received, a reminder should therefore be sent to the customer. Often he has only forgotten to transfer the amount and immediately complies with the request.
How long can an invoice be unpaid?
According to UK law, you can reclaim money for an unpaid bill up to six years after the billing deadline. However, you should not wait that long. As soon as you see that an invoice is overdue, it is advisable to send a payment reminder.
If it only becomes apparent after six years that an invoice has remained unpaid, the debtor no longer has to comply with the demand for payment, unless he has been notified of the default earlier. All correspondence with the debtor must therefore be kept, as this serves as evidence in court.
Unpaid invoices - What to do?
Unpaid invoices are a nuisance for any business. Not only do they put a strain on cash flow, but they also cost time spent creating and sending payment reminders.
Nevertheless, unpaid invoices should always be dealt with promptly so that they don't pile up.
Unpaid invoices & legal action in the UK
If an invoice remains unpaid and the deadline has expired, the creditor has the right to claim the amount owed. This is usually done by sending a friendly payment reminder. In most cases, the customer has only forgotten to pay the invoice and has not done so out of malice.
However, if payment is still not made even after one (or even several) payment requests, one must assume that the customer cannot pay (because he is insolvent, for example) or does not want to pay.
Then the only thing that helps is to take legal action by contacting a collection agency or a lawyer. First, they try to collect the money by extrajudicial means. If this also remains unsuccessful, a county court claim is filed and the debtor is ordered by the court to pay the bill.
Unpaid invoices: Letter sample for a payment reminder
So that you don't offend your customers, you should make sure to use a very friendly tone in your first payment reminder. This can look like this, for example:
*Hi [ Client's name ],
unfortunately, we haven't received payment for invoice xyz, due on xx/yy/zzzz, with an overdue payment of £100.00. Therefore, we kindly ask you to check your accounts.If payment has not been made yet, please do so until xx/yy/zzzz. In case you haven't received the invoice, find an attachment in this email.
Kind regards, [Your name]*
How to handle unpaid invoices in accounting?
Depending on the circumstances, there are different ways of dealing with an unpaid bill.
Cancelling the invoice
If you have not yet dispatched the goods or provided the service and the customer cancels, you can cancel an invoice that has already been booked in by credit note.
A credit note is a reversed invoice that is booked against the already booked invoice. Thus, the invoice amount cancels out and the books balance again.
Writing off an unpaid invoice
If you have already shipped the goods or provided the service, but the customer does not pay the invoice for it, you cannot help yourself with a credit note. In this case, the unpaid invoice must be written off as a "bad debt".
