As a business owner, dealing with unpaid invoices can be frustrating and impact your cash flow. It’s therefore essential to understand the timeframe within which an unpaid invoice remains valid, allowing you to take appropriate action to recoup the funds owed to you. In this blog, we explore the general rule for the validity of unpaid invoices, the significance of clear payment terms, and the importance of diligent follow-up.
General Rule: Typically, the validity of an unpaid invoice is governed by the payment terms set out by your business – it could be 7, 14 or 30 days for example. This means that the customer or client is expected to settle the invoice within the stated days of receiving it. However, this rule is not set in stone and can be modified based on mutual agreement between you and your customer.
Flexible Payment Terms: Discussing payment terms with your customers (and having them in writing) allows you to set a timeframe that suits both parties involved. You can negotiate a shorter or longer period than the invoiced time frame, depending on your specific circumstances. It is crucial to document any modifications to payment terms and clearly state the agreed-upon due date on the invoice itself. By doing so, you establish a transparent understanding of the payment expectations, minimising potential confusion or disputes.
Reclaiming Overdue Invoices: While the general rule governs the initial payment term, businesses have legal recourse to reclaim overdue invoices for a more extended period. Waiting to recover the debt does not waive the right of the party to bring a claim; companies can pursue payment for up to six years before the limitation expires.
Importance of Diligent Follow-up: To avoid reaching the expiration date of unpaid invoices, it is crucial to establish a systematic follow-up process. Keep detailed records of your attempts to recoup the outstanding payments, including communications such as emails, letters, or phone calls. This documentation will prove essential in case legal action becomes necessary. Regularly communicate with your clients or customers regarding the unpaid invoice, reminding them of the outstanding amount and the agreed-upon due date.
In Conclusion: Managing unpaid invoices is an essential aspect of running a business. Understanding the validity timeframe of an unpaid invoice allows you to take appropriate actions within the stipulated time. To mitigate the risk of unpaid invoices set firm but fair boundaries and maintain clear payment terms; also follow up diligently. Keep comprehensive records of your communication and collection efforts. By doing so, you maximize your chances of recouping the monies owed to you and ensuring a healthier financial future for your business.
For further details on how McKenzie Consultancy & Legal can support your business with any debt recovery situations please check out our website www.mckenzie-legal.co.uk
