Bad debts and unpaid invoices

Bad debts and unpaid invoices

If you bill via an agency what happens if the end client doesn’t pay the agency? Do you still get paid? Does the agency have to pay?

The answer lies in the exact wording of the contractual agreement between you and your agency. If there is a provision within the contract stating that the contractor ‘will only be paid on receipt of payment by the client’ this provision could be enforceable. Legally speaking, you have agreed to this arrangement. However, you might still seek redress if you have not chosen to ‘Opt out’ to the Conduct of Employment Regulations with your agency. These Regulations state that a contractor should be paid even if the agency has not received payment, regardless of the wording of the contract. If there is not a ‘pay when paid’ clause in the contract the agency should pay you in accordance with the agreed terms.  This is regardless of whether they themselves are paid and even if you have ‘Opted Out’.

To avoid doubt have all your contracts professionally looked over before signing and ideally reject a ‘pay when paid’ clause.

If you bill the end client directly what if they don’t pay you? When can you charge interest and how much can you charge? When is it time to sue them, can I insure the debt if I am really worried?

The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to charge interest on debts if the contractually agreed payment terms have been breached. Following an EU Directive, additional aspects are coming into force in the UK by 16 March 2013. Public authorities and businesses in general must pay for goods and services within 30 days as usual practice and within 60 days in special cases. Under the Act you can begin to charge interest either 30 days after the delivery of the goods or service, or, 30 days after you have advised the debtor of the amount owed.You can charge interest at a daily rate of at least 8% above the current Bank of England base rate. In addition you may apply legally set administration charges which are on a scale depending on the size of the debt owed.

Going to court should be viewed as a last resort, when all other efforts to obtain payment have failed. Although it only costs £25 to start your claim additional charges are payable as you progress through the process. It can also be stressful and time-consuming, so before taking this route consider whether the time and cost of recovery is worth the size of the debt.

Bad debt protection – known as credit insurance – is available from specialist insurers. The insurer will credit check all of your clients and – if things do go wrong – can provide essential protection of your cashflow.


This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.