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What To Do When A Customer Is Refusing To Pay For Work Done In The UK

What To Do When A Customer Is Refusing To Pay For Work Done In The UK

What To Do When A Customer Is Refusing To Pay For Work Done In The UK

Whether you run a small or medium-sized enterprise (SME), sole-proprietorship, partnership or you’re a freelancer, one unfortunate business situation that may come up is when a client refuses to pay for work that has been done.

From a small task to a huge project, not being paid for work done can be a huge blow to business owners but there are ways to try and navigate this tricky situation.

What should you do in such a scenario? What are the best legal procedures to resolve the issue and get the agreed payment? Read on for more insight.

Steps To Avoid Refused Payments

Before discussing what to do when a customer refuses to pay for work that has been done, let us evaluate how to avoid such problems arising in the first place.

The first solution is to have a contract or terms and conditions document that is sent to customers at the beginning of every sale. This would outline when invoices are going to be sent, the payment terms relating to them, and the steps that will be followed to collect unpaid debts.

Secondly, staying on top of invoicing is also an important step in avoiding payment issues that can escalate to payment disagreements.

What If This Doesn’t Work?

Sometimes, with all the right processes in place, a customer may still refuse to pay. They may dispute the quality of work delivered, they may be having difficulty raising the funds needed, but ultimately, if work has been delivered to standard and isn’t faulty, a worker should be fairly compensated for that work.

Evaluate their reasons for the reluctance to pay. Do they have valid points? Some customers might not pay because they feel cheated or think they did not get what was advertised or what they ordered. For some other customers, the issue is a case of “Can’t pay” and not “Won’t pay” – both are different and require different approaches. A customer who cannot pay probably had an emergency or problem with the payment platform that they are working hard to resolve.

All discussions regarding payment for work should be amicable and patient. There is nothing worse than getting angry and the situation escalating more than it needs to. You should also document all conversations relating to payment disputes in case they need to be referred to in legal proceedings as a last resort.

Lawyers typically advise their clients to be as patient and professional as possible. Send the customer reminders and try to negotiate how you can reach an amicable solution. A lawsuit against a defaulting customer is a good step but there is the risk of losing out too. One loser can become two losers and your business might even bear a loss since you’ve more to lose than the “anonymous” customer.

Therefore, do not rush into legal steps without confirming all the facts about the situation. Your business reputation is at stake the moment you have a public legal issue with a customer. Even when you feel “right”, try to evaluate the situation from the customer’s perspective.

If you are fully confident that your business has fulfilled its part of the contract as requested, you have given the client ample opportunities to pay what’s due, then you can look into the Legal steps required to recover the costs formally. This can be costly for all involved, so don’t take this step lightly.

Reclaiming Money Owed In England and Wales

Courts in England and Wales such as the County Court and High Court have maximum monetary values for the claims that are eligible for submission before them. They usually prefer the very expensive and complex business disagreement issues and the monetary value requirements are available on their respective websites. The small claims court is available for claims of £10,000 or less.

Reclaiming Money Owed In Scotland

Business disputes below a £5,000 value in Scotland have to use the “Simple Procedure” method to submit such cases through a Sheriff Court. The Scottish Courts and Tribunals website also contains other available alternatives for when customers refuse to pay for work done in the UK.

Business owners can also choose to settle payment disputes outside the court system by contacting Citizens Advice Scotland.

Reclaiming Money Owed In Northern Ireland

Payment disputes for products/services valued below £3,000 in Northern Ireland should be claimed electronically using the Small Claims Online service. Residents should check out the website of their Courts and Tribunals Service for the legal process.

Business individuals who seek additional information on how to retrieve their payments from unwilling customers should keep reading this guide for more help.

The beginning of the legal process

The DIY Route 

Business payment disputes that do not exceed a lawsuit of about £10,000 are sometimes considered less formal and therefore dealt with by the Small Claim initiative. This is a streamlined procedural system for attempting to resolve lower-value claims and can be accessed by anyone by filing through the online system or Country Court. .

We encourage the DIY approach for lower amounts through the online court system or the County Court. Business payment claims that exceed £10,000 but fall below £25,000 are eligible for the Fast-Track processing option. Like the Small Claims system, the fast-track procedure is relatively straightforward.

Putting in a claim via the internet

Consider using verified internet-based services like HM Courts and Tribunal Service’s Money Claim Online (MCOL) when a customer is refusing to pay for work done in the UK.

Rather than issuing legal litigation in court, these online services enable claimants and defendants to challenge customer payment refusals. It is an effective payment dispute method that saves the business and the customer valuable time and money. Besides, the value limit allowed for online payment dispute claims is up to £100,000 worth of debts.

To get started, pay the stated fee required to submit a payment dispute claim. The status of the complaint then becomes available and you can track the process. The different online tribunals and payment dispute systems offer the business and defendant opportunities to respond to accusations and allegations against them.

Bringing a lawsuit before the court.

It is not mandatory to have a lawyer for minor payment dispute claims in court. While you could still hire a lawyer, the court system allows either party to defend themselves.

The Small Claims Mediation service is usually approached for these types of claims that directly involve the defendant and complainant. They have to assist the business and aggrieved customer to reach a settlement that is acceptable to both parties.

Utilising the services of a debt collection agency

For some business owners, the legal steps route or mutual negotiation with a customer refusing to pay for work done can be stressful. That is why debt collection agencies operate to manage the process on your behalf. They aim to help their clients negotiate and recover unpaid payments from customers.

While they help to find innovative solutions to unpaid balances on the business account, understand that they get a service charge too. It is a sort of commission calculated based on an agreed percentage of the total amount they successfully made the customer eventually pay.

Not all debt collection agencies are trustworthy or have a good reputation. You have to conduct research on the available ones and check through their reviews and word-of-mouth testimonials. It is also important to confirm the fee they will charge before you start the payment retrieval process. Get the percentage and sign a legal agreement to avoid another round of disputes when the customer pays.

Most of the common debt collection agencies belong to the Credit Services Association and their restrictions on how they can collect your debts. It is usually easier when you already have a statutory demand or court judgement in your favour.

Putting a Statutory Demand Into Effect

When the defaulting party is a company, a statutory demand can be issued for that debt as long as it is not contested and the amount owed exceeds £750. It is a very effective method to convince late payers to complete payment for the purchase of delivered goods/services on time

In a situation where the statutory demand remains undisputed and payment is still not received within 21 days of its acknowledgement, the business owner can take legal action. You have the legal right to commence insolvency proceedings against the late payer or company. That would give you the right to close up their business.

Resolving disagreements regarding payments with the assistance of a lawyer

There are times when getting a lawyer is not primarily for setting up a court case. You can also hire a lawyer to help portray the seriousness of your intent to chase the payment owed to the client who isn’t paying. Quite often, a simple threat of legal action can do wonders for extracting payments from customers who have been ignoring your invoice emails or those trying to buy more time with empty promises.

With the assistance of a lawyer, you can draft a formal letter in the business name with the lawyer’s consent and send it to the customer. It formalises the process and also ensures your business does no wrong in an attempt to collect unpaid debts.

It is not advisable to hire a lawyer for a very small dispute claim that is probably not up to the legal fees of the lawyer.

What are the fees associated with initiating legal action?

The legal costs for charging a customer who is refusing to pay for work done in the UK is an important consideration. There is no fixed legal cost for payment disputes and the fee is often proportional to the amount of the money owed by the customer.

For filing business payment disputes through organisations like Money Claim Online, the expectation is that the disputed amount is about £300 to £100,000. The fees then range from £25 to about 4.5% of the business claim’s value. The agreed percentage is negotiable depending on the value of the claim. The complexity of the case is another determining factor. The legal representatives would have to consider if the payment issue is straightforward and is truly an uncontested debt that is owed.

For small claims disputes, the process differs from the fast-claim ones and can range from £9 to £900. There is also a slight possibility that you will not be able to recover all the costs, especially for the small claims dispute.

We often suggest business owners or companies carefully evaluate the value of their payment claim against the cost of legal representation so they can choose the most economically viable route for their circumstances.

Using Contracts To Protect Yourself

Having a formal and organised ‘offer-to-payment sales process’ is the ideal way to establish smooth customer-to-business relationships.

Ensure you take note of the following:

  • Before starting any business transaction, you should negotiate a contract and carefully outline the terms of the agreement. The contract document must include information like dates for delivery and payment, associated deadlines, and proof of product delivery.
  • A comprehensive contract document must also include clauses that allow you to terminate the business agreement in scenarios such as unreceived payment at the agreed time. There can also be a clause that grants your business the right to retain ownership of all products until full payment is made.
  • The contract must state terms for when the work is considered complete and your business is entitled to payment. That would include terms like communicating that the delivery has been made per the business agreement. The contract payment should be dependent on whether your business has completed its end of the deal and not if the customer has used the product.
  • For smaller business transactions or those projects that started without a formally written contract signed by both parties, there must be a record of agreement on certain terms. The agreement could be communicated verbally or through emails.
  • Your contract paper must explicitly state the terms of payment and conditions to determine when payment is overdue. That would help your business request for unpaid balance within the constraints of the law.
  • In addition to setting up detailed contract documents, you can send out invoices to remind and follow up clients on payment deadlines.
  • Doing all of the above would help you avoid the chances of customers not paying for work done. It also affords you other alternatives other than legal steps if you need to pressure a customer for your money.

Summary of What To Do When A Customer Is Refusing To Pay For Work Done In The UK

Taking legal steps against reluctant payers can be effective but should never be the first thought that comes to mind when a customer has refused to pay for work done.

Experts advise trying to amicably research what went wrong and granting the other party a fair time period to discuss and make payment, regardless of their reasons for withholding payment to date. Maintaining a smooth business-customer relationship is important and you should document all discussions relating to the late/missing payment.

What happens if they still refuse to pay? You can threaten legal steps to force them to listen to your negotiations appeal and if that doesn’t work, you can take the legal route.

Don’t forget, having well written T&Cs or contracts signed by both parties can help to avoid these types of situations arising in the first place.

 

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