Your Customer Hasn't Paid: When an Overdue Invoice Becomes a Commercial Dispute

There is a difference between a customer who is a week late and has explained why, a customer who has quietly decided its own payment terms are six weeks longer than agreed, and a customer who suddenly disputes the work when the invoice becomes due. Treating all three alike is usually a mistake. The first may need patience; the second needs boundaries; the third needs a careful examination of what was actually agreed and delivered.

In my own practice I generally require at least a deposit, and often payment on account in advance. That is a conscious way of controlling exposure; it would be misleading to suggest I routinely find myself chasing unpaid fees for completed work. When considering clients' debt disputes, however, the problem is familiar: the business has delivered what it believes it was asked to provide, while the customer does not pay and the reasons are changing.

Start with the correspondence, not the accusation

When a customer challenges an invoice, I want to see the full exchange, not just the complaint at the end. Was the alleged defect or disagreement raised while work was taking place? Did the customer approve a variation, accept a delivery or confirm completion? Is there evidence of a concern that has been building for weeks, or has the complaint surfaced only once the account fell due? The chronology matters.

A late objection is not automatically dishonest. Customers may discover a defect after delivery, and a genuine disagreement about scope can take time to become apparent. Equally, a supplier should not abandon an otherwise supportable debt merely because the customer has now begun using the word 'dispute'. Identify which part of the sum is contested, what precisely is said to be wrong and whether any undisputed balance can be paid without compromising the rest of the claim.

Too many debt files lack the basics

Frequently the missing pieces are not exotic legal documents. They are the accepted quotation, the purchase order, the identity of the contracting party, the agreed payment terms, written approval for extra work or a record that the customer accepted a change. Sometimes the parties can reconstruct the agreement from emails, messages and conduct. The absence of a signed contract is not necessarily fatal. But establishing the sum due becomes more expensive when both parties have operated through informal conversations and assumptions.

Before sending a demand, assemble the order, contractual terms, invoices, account statement, delivery or completion evidence and the communications about any complaint or extension. Check who owes the money. A trading name, a limited company and an individual proprietor are not interchangeable debtors. A strong payment demand sent to the wrong party is no substitute for identifying the debtor correctly.

Late payment requires judgement, not endless patience

For my own clients, if an invoice becomes overdue with no communication, I am prepared to put further work on stop where the engagement permits it. That can be a much more effective intervention than an angry letter. The message need not be theatrical: 'I am sorry, but we have had to pause further work while your overdue account remains unpaid. Please let us know when payment will be made.' The important qualification is that suspension must be permitted by the contract and handled carefully where continuing duties, safety, service continuity or other obligations apply.

I do not recommend applying that approach indiscriminately to every client's customers. If the customer can easily move its business elsewhere, an unnecessarily aggressive demand may destroy a profitable relationship. A prompt call, a short written reminder or a realistic documented arrangement may be commercially wiser. A usually reliable payer who has been in touch deserves a different response from somebody who ignores repeated contact or asserts new payment terms after the event.

Businesses should not be frightened of appropriate litigation, either. The object is not to threaten it in every email, but to make a deliberate decision about escalation. A customer saying 'we always pay six weeks in arrears' does not, simply by making the assertion, rewrite a thirty-day contractual term. The supplier can protect its position firmly and professionally without treating every overdue account as a personal insult.

Statutory interest is a right, not a first move in every relationship

The Late Payment of Commercial Debts (Interest) Act 1998 may entitle a supplier to statutory simple interest on qualifying business-to-business debts at eight percentage points above the applicable Bank of England reference rate. Fixed compensation can be £40 for a qualifying debt below £1,000, £70 from £1,000 to below £10,000, and £100 at £10,000 or more. Additional reasonable recovery costs may be recoverable where the fixed sum does not meet them.

Those rights are subject to the transaction, the dates, the agreed terms and whether the contract provides a substantial alternative remedy. The reference rate is fixed by the relevant six-month period; it is not necessarily today's base rate. Consumer debts are not governed by the same commercial late-payment regime. Interest and compensation belong in a proper assessment of rights, but using them as the opening message to a valuable customer may be commercially counterproductive.

A judgment is not cleared funds

One of the most important distinctions I draw when assessing debt matters is between a legally arguable claim and a debt that is worth the cost of collecting. I have advised clients against pursuing claims that might be valid on paper because the debtor's apparent means made actual recovery doubtful. This applies even where the face value is substantial. A £25,000 judgment is of little immediate commercial use if an individual debtor has no reachable assets and can realistically pay only a token amount each month.

That is not a statement that people on low incomes can never be pursued, or that a debtor's apparent financial position is conclusive. It is a reminder to examine assets, income, other claims, likely enforcement costs and whether circumstances may change. The options may include enforcement agents after judgment, an attachment of earnings where available, a third-party debt order, a charging order or, in appropriate circumstances, an insolvency route. Each has requirements, expense and limitations. Bankruptcy and winding-up proceedings must not be deployed as routine pressure tactics against genuinely disputed debts.

A focused assessment before litigating can therefore save a business more than a successful judgment that never produces meaningful payment. Sometimes commercial satisfaction matters, and a client may knowingly choose to proceed. That choice should be made with realistic information, not on the assumption that winning in court guarantees recovery.

The first effective intervention may be quite ordinary

For an otherwise reliable commercial customer, I would usually start with a direct but measured conversation or short written reminder. Where the contract allows, a temporary hold on additional work may focus attention without lengthy references to law. If a genuine dispute is raised, the first letter should address the disagreement and evidence, not simply increase the volume of the demand.

Sometimes a carefully framed letter from an adviser resolves the problem. Sometimes it does not. Results vary with the customer, their finances, the quality of the evidence and the basis of the objection. That is why a proportionate strategy matters more than a one-size-fits-all letter before action.

Before deciding what to do next

Ask four questions: what is the basis and evidence of the debt; what, if anything, is actually disputed; what is known about the debtor's ability to pay; and what would escalation cost compared with the likely recovery and the value of the ongoing relationship? If those questions are answered first, the next step becomes clearer and usually more defensible.

Aubrey International assists businesses with contract and correspondence reviews, commercial debt triage and early dispute assessment where an unpaid account is moving beyond ordinary credit control.