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HOW TO RECOVER UNPAID INVOICES by Oluwadara Oniosun

HOW TO RECOVER UNPAID INVOICES

As an entrepreneur, the challenge of recovering monies owed by clients cannot be ignored.

As a matter of fact, a major concern is whether the invoice issued, is receiving attention from clients upon issuance. Simple things, like issuing invoices out promptly, making sure the payment due date is identified, and ensuring the payment process is seamless  by providing bank details and more than one means of payment, can help to reduce the likelihood of having unpaid invoices.

In this article, we will examine steps to take to recover unpaid invoices and legal mechanisms that can be explored to recover unpaid invoices by startups. The steps listed below are not inexhaustive. No matter how efficient the invoice generation and dissemination system is, there are some instances where the client is simply refusing to pay, and legal action may be required.

 

STEPS TO REDUCE INCIDENCES OF  UNPAID INVOICES 

The following steps should be considered to reduce incidences of unpaid invoices.

  1. DISCUSS PAYMENT TERMS EARLY 
  • As a business owner, it is best to make one's expectations clear and lay out the payment plan which will suit the business (profit-wise), taking into considerationthe time frame and the required deposit.

 

  • DOUBLE-CHECK INVOICES
    • All information as regards payment on the invoice must be correct and up to date.

 

  • DOCUMENT EVERY AGREEMENT 
    • It is advised that a written record should be kept concerning payment promises by the client/customer. This record helps to track the expected payment date, and avoid communication gaps.
    • Ensure you have a record of all communication between the business and the customer, including emails, phone calls and dates.
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  • IMBIBE QUALITY CUSTOMER SERVICE 
    • The company can reach out to clients to discuss any issue or reason for non-payment.
    • Try to find a compromise or solution to any issue.
    • It is also advised that a compromise can be reached upon discussion and mutual agreement between parties (such as granting an extension on thepayment deadline) when discussing a way forward with clients as regards delay in payment.

 

  • FOLLOW-UP PERSISTENTLY
    • Business owners are advised to follow up on clients that have not paid for services rendered persistently. There are situations where clients/customers forget payment deadlines as a result of being distracted by other pending issues. Also, there is a general belief that your consistency as a business owner as regards sums of money owed, shows how badly such amounts of money are needed for the growth and sustenance of the business. It is also advised that this approach be done professionally.

STEPS FOR DEBT RECOVERY

 

The first step in debt recovery is to issue a demand letter. The demand letter could be written by the company itself or a lawyer engaged by the company to solicit on their behalf. The demand letter usually gives a timeframe within which the debt is to be paid (e.g seven days, fourteen days).  In the event that the debtor refuses to pay the relevant sum within the given period, the company can institute legal action to recover the unpaid invoices.

 To preserve the business relationship that existed between both parties, Alternative Dispute Resolution (ADR) is an advisable method of resolving the dispute. The rules of court across states in Nigeria encourage the aggrieved party to explore ADR to resolve disputes. Before instituting an action in court it is required that the lawyer instituting such action affirms that ADR has been previously explored.  Businesses, especially startups, should explore ADR to recover debt or unpaid invoices.

 

WHAT IS ALTERNATIVE DISPUTE RESOLUTION (ADR)?

Alternative dispute resolution (ADR) refers to the different ways people can resolve disputes without going to trial (litigation). Examples of ADR include Negotiation, Arbitration, Mediationand Conciliation. These processes are generally private and require lesser formalities.

NEGOTIATION: In negotiation, parties come together to resolve adispute voluntarily, they discuss the conflicts and issues pending, and attempt to reach a decision acceptable to all parties. No third parties are involved.

ARBITRATION: In arbitration, a neutral third party called an "Arbitrator” is appointed by parties to resolve the dispute and then decides the outcome upon listening to all disputing sides. In an arbitration panel, arbitrators could be more than one in number, depending on the agreement of the parties. Arbitration is less formal than litigation, in a regular court and the rules of evidence are often relaxed. In arbitration, parties agree to accept the arbitrator’s decision as final,and an arbitration decision is called an Award. Arbitration proceedings in Nigeria are regulated by the Arbitration and Conciliation Act 2004.

MEDIATION: In mediation, a neutral third party called a "Mediator" helps the parties try to reach a mutually acceptable resolution of the dispute.  The mediator does not decide the case but helps the parties communicate so they can try to settle the dispute themselves. Lawyers in mediation often are present to ensure the mediator stays neutral and their client's rights are protected. The Lagos State Multi-Door CourtHouse is an example of a mediation centre in Nigeria. The decision to accept the outcome of the mediation lies with the parties. The proceedings of the Lagos State Multi-Door CourtHouse are governed by the Lagos State Multi-Door CourtHouse Law 2015.

CONCILIATION: In conciliation, a neutral third party or Conciliator (who may or may not be neutral to the interests of the parties) is used by the parties to help resolve the dispute. Like mediation, conciliation is a voluntary, flexible, confidential, and interest-based process. The parties seek to reach an amicable dispute settlement with the assistance of the conciliator.

The main difference between conciliation and mediation proceedings is that at some point during the conciliation, the conciliator will be asked by the parties to provide them with a non-binding settlement proposal. A mediator, by contrast, will in most cases and as a matter of principle, refrain from making such a proposal. Similar to mediation proceedings, the ultimate decision to agree on the settlement remains with the parties, in Conciliation.

BENEFITS OF ADR 

  1. SAVES TIME: ADR matters are often settled in record time than going through the regular court trial.
  2. PRESERVES RELATIONSHIP: ADR is less adversarial. It often allows parties to preserve the relationship that existed before the dispute.
  3. CONFIDENTIALITY: ADR is done in privacy, not within the public sphere of a courtroom.

 

CONCLUSION 

In the event that a dispute emanating from unpaid invoices cannot be resolved by ADR, an action could be instituted in a court of competent jurisdiction.  Companies especially startups are advised to understand the need to mitigate the risks associated with litigation. It is important to mention that litigation affects the reputation of startups within their industry, among clients and prospective investors. In issuing and circulating invoices, it is advised that the steps listed above are followed. However, in situations where the clients are recalcitrant, the company is advised to engage the services of a lawyer to write demand letters and explore the most suitable ADR method.

 

 

 

 

 

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