Is it Worth Going to Small Claims Court for Unpaid Invoices?

There will come a time in your business life when you have invoices owed to you that remain unpaid. For small businesses this is a tough predicament, likely eating into your income. The small claims court process is designed to help people in exactly this situation.

Consider your first steps

However, before you head down the small claims court route, it’s worth considering what action you can take first.

If you use cloud-based accounting software, such as Pandle, reminders for invoices can be sent automatically. This takes the pressure away from you in terms of managing the early administrative steps of chasing invoices. It also provides a clear professional approach which can help ensure payment is made.

Sometimes these reminders, or even a final letter requesting payment, are sufficient to spur the tardy payment on. Additionally, if there is a dispute over payment then it may be worth considering mediation in the first instance. This is important as there are costs involved with using the small claims court.

When to use the small claims court

Failing these attempts to recover the payment yourself, you can consider the small claims court as long as the amount due is under £10,000. It is designed to be a simple process which can be navigated without legal help.

There is a fee payable which is dependent on the size of the claim. Further costs may be incurred if a hearing is needed or further steps need to be taken to recover costs (for example using bailiffs to seize goods). Technically, fees can be added to the claim. In reality, they are rarely recovered.

Your first step should be to write a letter to the person owing money (as you may have done above). This should clearly state the nature of the debt, evidence to support this, and that you are proposing to take small claims court action if the debt is not paid. Set a date by which you will act if payment is not made. This letter forms a vital part of the process.

Once your deadline has passed, and you have either tried or don’t wish to attempt mediation, then you will need to fill in Claim Form N1. It is cheaper to do this online.

What happens next is dependent on the person owing the money. The most common outcome is that they will now make payment. The threat of action alone spurs them in to paying, finally.

However, they can refuse to pay, ignore you, or dispute your claim. This is when costs can start to escalate as well as your time input. It can be important to consider whether the input needed is worth continuing the claim at this stage. This can be particularly true if the company from which you are seeking payment is close to bankruptcy.

If you want to continue but need help

If things have become a ‘matter of principle’ or you are set on pursuing the small claims route in its entirety, then you may need some help. You shouldn’t need a lawyer, but you could consider using a paralegal that can help keep your costs down.

Most frequently it is ‘worth’ the first few steps of the small claims court process. If payment is going to be made then this is when it will happen. If these first steps fail then cutting your losses may be the most sensible course of action.

Do you have trouble with unpaid invoices? Try Pandle to help you keep on top of invoices and easily send out reminders automatically.