7 steps to recovering unpaid invoices from the COVID-19 pandemic

The fact is that we’re now facing a business landscape filled with companies who now cannot recover the money owed to them.

Hiatham Javaid | Senior Litigation Executive

By Hiatham Javaid, Senior Litigation Executive 

At the start of this year alone, a staggering  £23bn of late invoices remained unpaid. With many businesses suffering from a decline in cash flow due to the pandemic, it’s estimated that around 62 per cent of small and medium-sized companies have suffered late or frozen payments as a direct result of COVID-19.

The leniency extended to many businesses during this time was unarguably much needed, but the fact is that we’re now facing a business landscape filled with companies who now cannot recover the money owed to them.

The Office for National Statistics (ONS) identified that more than half (54 per cent) of businesses in the UK are still waiting on late payment of invoices because of COVID-19. Further industry research has also indicated that 64 per cent of SME owners fear that these late payments could result in their business becoming insolvent in the future. So, what are the steps to take to ensure you now recover owed debt?

How can my business reclaim payments?

1. Get your house in order

You have provided the goods, work and/or services. Diarise when payment should land. If it doesn’t, be prepared to chase. Do not let unpaid invoices increase in volume.

Remember, prior to chasing the unpaid invoice, check all the information you have to hand.

Incorrect information can cause dispute and significant further delays during recovery. It’s important that you check:

  • The invoice amount
  • Invoice due date
  • Customer or client details i.e., correct legal entity
  • Address details
  • The details on the invoice i.e. is it for the correct service/work/goods

2. Everything needs to be in writing

While easy to allow the impact of the pandemic to put you off chasing unpaid invoices, it is important to notify your client that they are late in paying as soon as possible. This does not need to be an all-guns blazing final demand letter in the first instance and can be in the form of a friendly written reminder that the invoice is outstanding.

It may be less awkward to follow up on an unpaid invoice over the phone, but maintaining a paper or digital trail is vital when pursuing a late payment and can later down the line be proof of the client’s conduct, whether it be a refusal to engage, failed payment attempts or simply understanding their position – all of which are important in understanding their situation and crucial in recovery.

If you do proceed to formal legal recovery, then you will need to prove that you followed a fair process so be sure to keep a record of all correspondence.

3. Cease all work until the invoice is paid

While this may appear harsh, particularly within a COVID landscape, businesses must put their priorities first by focusing on projects that will have a positive impact on cash flow. There is absolutely no point continuing to effectively work for free with no timescale for payment of your invoices.

If the client continues to refuse to pay the invoice, you must be prepared to down tools and should cease to work with them until it has been paid. This issue will undoubtedly have plagued many businesses, but it is SMEs who have experienced the most significant impact.

Disrupted cash flow can place serious strain on SME business owners, who rely on regular invoice payments to ensure the payment of their overheads. What’s more, many SMEs don’t have a dedicated finance department, meaning that constantly chasing invoices can be a drain on resources.

4. Chasing invoices for completed work

Have an effective strategy in place for recovery.

There is no one size fits all solution to this as all clients are different and plans for recovery will need to be somewhat tailored. However, adhering to a simple but robust plan within your company can bode well for the future.

For example, if your standard terms for payment of the invoice is 30 days, on day 31 send that friendly reminder. If following that, you haven’t heard anything within 7 days a more formal letter should be sent and pretty soon after that depending on the response (or lack of), you will have a clearer picture of where you stand and the likelihood of recovery without formal action.

If it doesn’t look as though payment is going to be received anytime soon, do not be afraid to escalate. You have the right to recover your invoices legally should they be unpaid after the agreed deadline and in line with your terms and conditions. Formal legal action would be your next step.

5. Avoid a debt collection agency

Your client’s matter to you and repeat business, referrals and reputation are all important to you and your business. While some may suggest your next step could be to use a debt collection agency to recover funds, we would advise caution and warn of the potential detrimental impacts including:

  • Using an agency can no doubt be cheap, but the cheerful part is somewhat lacking. If a generic letter that an agency sends to tens of thousands of people is what you are after, then the agencies do have their use. But do consider how you want your business to be portrayed as well!
  • Looking at what the ultimate goal is; recovery of as much money and as quickly as possible (whilst attempting to maintain your business reputation as a professional and commercial outfit), you must be careful.
  • Agencies work on volume and do not tailor their correspondence. It is a numbers game, with no forethought for individual scenarios in recovery.
  • If you are serious about getting your invoices paid, engaging a law firm means that the firm can take your claim all the way to Court for you. An agency usually has to pass on your matter to a law firm somewhere down the line as they do not have the facility or resource to act for you in Court.
  • A law firm will also provide you with the added value of knowing the correct process has been followed, correspondence will be tailored and you have the assurance that compliance of requirements of the Pre Action Protocol for Debt Recovery (as an example) are adhered to.

6. Bring in legal support

There are as mentioned, several steps available to reclaim unpaid invoices directly and having a strategy within your business is important. However, if you are still experiencing significant delays, it’s advisable to engage legal support to ensure you are not only fully compliant with your own efforts, but to also get the best chance of recovering the full amount owed.

Legal experts will be able to advise on the next course of action from a mediation or statutory demand to court action.

7. Consider signing up to the Prompt Payment Code

The Prompt Payment Code (PPC) was implemented by the government in January 2021 to crack down on delayed invoices owed to small businesses and is effective from 1 July 2021.

Those companies who have signed up to the PPC are obliged to pay invoices within 30 days, half the time outlined in the former Code. To ensure that the introduction of this code has the desired effect, business owners, Finance Directors or CEOs will be required to personally sign the Code to ensure invoices are paid in the required time, and late payments or breaches of this will be suitably investigated.


The Federation of Small Business estimates that around 50,000 SMEs close every year simply due to late payments. This is a crisis that will have a detrimental impact on the UK economy if not addressed, and the pandemic has only served to make matters worse.

We must maintain healthy supply chains to ensure the future prosperity of the UK economy; particularly following a period of extreme economic difficulties and poor cash flow for businesses in many industries.

If you continue to experience difficulties in reclaiming money that is owed in exchange for your company’s goods or services, please get in touch with me directly on hiatham.javaid@primaslaw.co.uk.  

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