What to do if a customer refuses to pay?

Customisable business insurance
09 July 2020
6 minute read

If someone owes you money for a job, what can you do? (UK only)

Late payments. ‘Missed’ invoices. Customers who go silent on your chasing. It’s frustrating, damaging and can even be distressing, especially if you’re forced to take legal action. Here are some options if a customer refuses to pay, even if you don’t have a contract in place.

From a friendly email for invoice payment, to a final demand for payment letter, if you’ve tried everything and your customer won’t pay, you might decide to take more serious action.

Official guidance from gov.uk highlights these key options:


Where someone impartial and trained in conflict resolution acts like a referee between you and the customer. This usually comes with a fee, but can be cheaper than taking court action.

Court action

If the money you’re owed is less than £100,000 and owed by no more than two people (or two organisations), you can make a court claim online. If not, it’ll be in person.

Official demand

You can use a statutory demand, and if your customer ignores it or can’t pay, you can apply to a court to make them bankrupt (if you’re owed £5,000 or more by an individual), or get the company liquidated (if you and any other creditors are owed £750 or more).

Customer won’t pay tip: Remember, this option can push your costs very high, and you may not get your money back. Always get legal advice – you can find resources for this on gov.uk.

You’ll need to register your claim to money from a bankruptcy, so that if there’s money available, you’re paid a share. Find out more on gov.uk.

You can avoid most payment issues with a clear invoicing process and communication plan. Contractors and small businesses often ask about these key documents and issues, when setting up contracts and payment process:

Client and company agreement

Also known as a ‘client contract’, the aim here is to nail down expectations. This might be anything from deliverables and payment to timings and what’s included (scope). Three key details to include will be:

  • contact details (for you and the customer)
  • deliverables (including things like agreed timings)
  • payment terms

When it comes to payment terms, it’s fine to go through some back and forth. Make sure you’re happy with how quickly the customer needs to pay after receiving the invoice, the payment method, and what happens if a client doesn’t pay.

How to write a payment contract

This is usually the payment terms section of your client contract.

For your payment terms to stand up in a court hearing, they need to be fair. Check the Consumer Rights Act 2015 for full details, and gov.uk for guidance.

Key things to bear in mind are your customer’s interests, avoiding ambiguity, being open and fair, avoiding jargon, ensuring the payment contract is reader-friendly and that payment terms are brought to their attention, and being careful around terms that could work against your customer.

Collecting fees from clients – what’s the process?

First things first, always make sure your invoices and cost or price quote the terms and conditions set out in your client contract. Being clear every step of the way in your communications will be key to receiving the money you’re owed.

Sent the invoice, gone past the payment deadline and wondering what to do when the customer won’t pay? In general, the process for collecting your late fees will run like this:

  1. Send a friendly reminder email for invoice payment
  2. Call their accounts department to follow up
  3. Send a late payment letter, as a polite nudge, referencing your payment terms
  4. Follow up with a second late payment letter, as a firm reminder, referencing any charges that may legally be added
  5. Send a final notice letter, explaining any next steps and consequences for failure to pay

a desk with laptop and notebooks

What does ‘payment due upon services rendered’ mean?

You might see this phrase used in more formal payment chasing communications, especially if after an email and several letters, your customer won’t pay. Services rendered are the services you’ve completed in line with your client contract.

So ‘payment due on services rendered’ is a formal way of saying ‘payment is due on the work I’ve done for you’.

Final demand for payment letter (UK only)

If you’ve sent a firm reminder but your customer still won’t pay, you may need a final demand. This will be the last reminder that payment is due, and should be designed to get your client’s attention.

When should I send it?

Depending on the cut-off payment date you set out in your firm reminder letter, you should send your final demand as soon as possible after this date has passed, and include a new, and final, deadline (usually a maximum of 14 days). You’ll also need to make clear any further action you’ll take if they miss this final deadline.

What should I include?

In the UK, your final demand for payment letter should include:

  • your company’s name and contact details ...
  • … and your customer’s
  • today’s date
  • any applicable reference numbers
  • reference to your previous letters
  • the total amount outstanding (as a clear breakdown)
  • a brief explanation that the payment is in breach of your client agreement and payment terms
  • final payment deadline and next steps

What to do when a customer won’t pay, after your final demand

If your final demand for payment letter has been ignored, or your customer still hasn’t paid, you may need to escalate matters and look into mediation (there’s a separate Scottish mediation service), a statutory demand, or taking legal action through the court.

Court options

In England and Wales, the court you use will depend on how much you’re claiming for. Most businesses will use the County Court rather than the High Court.

Not claiming in England or Wales? If you’re in Scotland, refer to the guidance from Scottish Courts and Tribunals or in Northern Ireland, use nidirect.

Small claims track

If you’re owed less than £10,000 by your customer, you can submit a claim yourself to the small claims track. This will then be handled online, or through the County Court.

There’s also the fast claims track, which may be used if your claim is less than £25,000, and will be handled with reduced procedures through the County Court. Ultimately, the judge in your case will decide which track or ‘route’ is best for your claim.

Other options

Keen to avoid court? You could issue your claim completely online using Money Claim Online (MCOL), which is run by HM Courts & Tribunals Service, and applies to debts of up to £100,000.

You can also use a debt collection agency, who would work with you to recover the money you’re owed. They’ll charge a percentage of the money you recover, as commission, and you’ll usually need a statutory demand to get this started, or a court judgment.

Statutory demands or a formal letter from a solicitor can often be effective in recovering your payment, for late payers who don’t want to be taken to court.

Can I sue without a contract?

Having a signed contract in place is very important, as it provides written evidence of the agreement between you and your customer.

If the agreement was verbal and you started the work on a trust basis, or there is simply no contract to refer to, it is still possible to sue. Proving your case will be much more difficult, however.

Usually, you’ll need to show that a ‘binding agreement’ was in place. This will include evidence of an offer, your acceptance, a ‘meeting of minds’ (an understanding between you both that an agreement has been made and that you consent to its terms), and exchange of ‘consideration’ (usually money).

The information contained in this article is provided for informational purposes only and should not be construed as legal advice on any matter. You should not rely on the information published in this article. The information in this article does not take account of individual circumstances and may not reflect recent changes in the law. Do not act or refrain from acting upon this information without seeking professional legal advice.

This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer.

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