Unpaid invoices: what to do when a business customer won't pay

What counts as an unpaid invoice

An unpaid invoice is one your customer has not paid by its due date. Overdue invoice and past due invoice mean the same thing. The due date is whatever you agreed, so the first question is always what your contract or terms say.

If you never agreed a date, the law may set one. In the UK, a business payment is late 30 days after the customer gets the invoice or after you deliver the goods or service, if that is later (GOV.UK). In the EU, a payment period agreed between businesses should not exceed 60 calendar days unless both sides expressly agree otherwise and it is not grossly unfair to the creditor (Directive 2011/7/EU, Article 3(5)). In the US, the contract and state law decide.

Check these before you chase

Some invoices are late for an administrative reason. Rule these out first, so your reminder lands with the right person and cannot be brushed off:

• The invoice went to the right contact, usually accounts payable, not only the person who ordered.
• It carries the purchase order number, the customer's legal name and the details their system needs.
• The amount, the due date and your bank details are correct.
• The goods were delivered or the work signed off, and you can prove it.
• The customer has not raised a complaint you have not answered.

Clear terms prevent most of these problems: see our guide to payment terms.

The escalation ladder: from due date to day 90

A fixed ladder keeps the tone friendly early on and makes the later steps a surprise to nobody. The timings below are a common rhythm, not legal deadlines; shorten them for large amounts or customers abroad.

Keep every reminder, call note and reply. If the invoice goes to collection or court, that record is your evidence.

What you can charge on an unpaid invoice

Start with your contract: if it sets a late payment rate or fee, that usually applies. Where it does not, business late payment law may give you a statutory right.

• UK: statutory interest of 8% plus the Bank of England base rate on business to business transactions, unless the contract sets a different rate (GOV.UK), plus a fixed sum per invoice for recovery costs: £40 up to £999.99, £70 from £1,000 to £9,999.99 and £100 from £10,000 (GOV.UK).
• EU: interest at the reference rate plus at least eight percentage points (Article 2(6)) and, as a minimum, a fixed sum of EUR 40 for recovery costs (Article 6(1)) under Directive 2011/7/EU, as implemented in each country.
• US: mostly what your contract and invoice terms say, within each state's rules on interest.

Our guide to late payment interest sets out the rules by country. If a partner collects the invoice for you through Debitura, the interest and fees the law lets you claim from the debtor go to the partner, and your statement shows the split.

When to hand an unpaid invoice to a collection agency

Reminders do most of the work. Collection is the next step for the invoices they do not settle. Hand over when the customer has stopped replying, has missed dates they promised, or the invoice is 45 to 90 days past due without a plan. Hand over sooner if the customer is abroad, where your own reminders carry less weight. Our guide to B2B debt collection explains what happens next.

With Debitura, you submit the invoice by hand, by CSV or straight from your accounting system, for example from QuickBooks Online or Stripe. You see the fee and the partner before anything starts. A vetted local partner in your customer's country then contacts them, under local law and in their language, and you follow every step on one platform and talk to the partner in the case chat.

There is no upfront cost. You pay a success fee only when money is recovered: from 6% in Europe and 7.5% elsewhere, depending on claim size and the debtor's country (see pricing). The standard agreement covers undisputed unpaid invoices; disputed claims get a quote first. See how our commercial collection agency service works, step by step in how it works, and the terms in the Standard Debt Collection Agreement.

Legal action for unpaid invoices

If collection does not get the invoice paid, the next step is a court claim. For smaller amounts that can be a small claims court or a simplified procedure; in the EU, an uncontested claim against a business in another member state can go through the European Payment Order. A judgment then has to be enforced where the debtor's assets are, which for a customer abroad can mean enforcing a judgment in another country.

Court costs money and time, so weigh the amount against the cost and the chance that the debtor can pay. On Debitura, legal action is optional: your partner can recommend it, you get a quote, and it only starts if you accept.

Do not wait too long, because claims become time-barred: in England and Wales an action founded on simple contract cannot be brought more than six years after the cause of action accrued (Limitation Act 1980, section 5), and in New York an action upon a contractual obligation must be commenced within six years (CPLR §213). Other countries differ: see limitation periods for commercial debt.

If your customer is abroad

An unpaid invoice from a customer in another country is harder for three reasons. Your reminders arrive in a foreign language from a company the customer knows cannot easily sue them. The claim runs under their country's law and limitation period. And any court action or enforcement happens in their courts.

That is why a local collector works: a demand from a firm in the debtor's own country, in its language, citing local law, is harder to ignore. The usual alternatives are finding and contracting an agency in each country yourself, an international network that passes the case to a subcontractor, suing at home and enforcing abroad, or writing the debt off.

With Debitura, one agreement covers pre-legal collection in every country we serve, 180 countries in all, and we match your case to a vetted local partner in the debtor's country. On European cases, the median time to first payment is 33 days and the median time to close is 44 days. Read our guide on how to collect a debt from a business customer abroad, or go to the country guide for the United States, the United Kingdom, Germany or France.

How to prevent the next unpaid invoice

• Agree terms in writing before you deliver: the due date, the late payment rate and the governing law. See payment terms.
• Check new customers, especially abroad, before you sell on open account.
• Ask for a deposit or staged payments on large orders.
• Keep ownership until you are paid with a retention of title clause, if you sell goods.
• Automate reminders in your accounting or billing system, and connect it so overdue invoices can go to collection without retyping.

Subscription businesses see the same pattern on churned accounts, and exporters on goods they cannot take back: see debt collection for SaaS companies and for manufacturers and e-commerce, or for small businesses with the occasional unpaid invoice.