Unpaid invoices are a frequent problem for sole traders and small entrepreneurs. Several unpaid invoices, sometimes even a single one, can threaten the continued operation of a business and lead to debt or even insolvency. How to prevent unpaid invoices and what to do if a customer fails to pay?
Whether you are selling goods or supplying services under a sales contract, a work contract or a cooperation agreement, it is important to clearly negotiate payment terms with the client. Small tradesmen in particular often do not negotiate contracts in writing, nor do they require any confirmation of the agreement of the service or even of the delivery of the goods. By doing so, they create the conditions for the customer not to pay the invoice. A clearly written contract or at least a summary of the payment terms in a written order will help to avoid disputes or other problems. The terms and conditions to which the contract refers may also contain a modification of the payment terms.
Tip: We will draw up the contract of sale and the contract for work for you. Protect yourself and your clients and avoid the complications that a poorly drafted contract could bring.
You can set a fixed datefor the price or reward to be paid, or by meeting a condition, e.g. completion of the renovation of the house. It may then be appropriate for the client to negotiate the option not to pay the invoice or part of it if the performance is defective. However, the due date for payment of the price should not be left solely to the discretion of the supplier, who would merely state it in the invoice issued without depending on his performance.
It is also advisable to thoroughly vet clients and business partners, requiring stricter terms regarding payments and guarantees if any risks are identified.
If you want to draft or review a contract in accordance with the New Civil Code (NCC) so that the payment terms are set correctly, take a look at our range of company contracts.
Advances are a good way to prevent poor customer payment morale. Again, the negotiation of advances should be the subject of an agreement, in a written contract. The start of work or deliveries can then be dependent on payment of the advance.
It should be noted that even if the customer does not pay the invoice, you must still pay value added tax to the government. It is therefore advisable to receive the advance payment first so that, in the event of poor payment morale, all necessary expenses related to the contract are at least covered.
It pays to check your potential client in advance. You can do this simply by looking him up on the internet or on social media, where people in your industry congregate. After all, if he or she has a history of non-payment, it would probably have already come to light this way.
It’s also worth checking the trade or business register to see if he is a resident of the local authority, which can indicate debt problems. Then look in the insolvency register or the central register of enforcement actions and if you find the client there, think carefully about working with him.
If, despite a well-drafted contract, a customer fails to pay an invoice, the situation needs to be addressed as soon as possible. It may just be a poorly entered payment order, which the client might not have come to immediately without your notice. However, if the client has financial problems, delaying collection could only lead to the invoice not being paid and you having to write off the debt. In any case, it is advisable to notify the client as soon as possible that he has not paid the invoice. If the payment is several days overdue, a phone call or email will usually be sufficient.
If he still fails to pay the amount due, it is advisable to issue a pre-action notice and threaten legal action to recover it. Even if the payment terms are subject to a confidentiality agreement, disclosure of these details to your solicitor or the court will not be considered a breach of the confidentiality agreement. Often such a reminder will have a greater psychological effect and the debtor will pay rather than risk threatening court proceedings and paying your solicitor’s costs.
The pre-suit notice should be sent at least 7 days before the lawsuit is filed. It should clearly state both parties – i.e. you and the debtor, the amount of the debt, the circumstances of the debt, a demand for payment and information that you plan to pursue the debt in court. Finally, of course, the date and your signature must not be missing.
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To ensure that the debtor takes your pre-action notice seriously, it is worthwhile to have our lawyer send it to them. In addition, we are able to assess your situation and your chances of success. We will also file the lawsuit for you and represent you in court.
If the debtor fails to pay the debt despite all efforts and reminders, there is no other option but to seek payment of the amount owed through a court action. For the sake of completeness, we would like to add that a written demand for payment is a prerequisite for the court to award you the costs of the legal proceedings if you are successful in the dispute. Only after successful litigation will it be possible to enforce the claim and sell the debtor’s assets.
Tip: Debt collection through our service will usually guarantee you a faster, more efficient and significantly cheaper solution. You’ll save yourself weeks or months of pleas and reminders to pay, and usually save on costly court settlements.
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It is common practice to settle without court proceedings, where the court issues a payment order to the debtor. However, if the claim is ambiguous, the court proceedings come into play.
In case of payment problems of a customer, it is important to check the insolvency register regularly in addition to active debt collection. Should the customer be insolvent, the law sets relatively short deadlines for filing claims in insolvency proceedings. If a claim had not been filed, it would not have been possible to satisfy the claims and in some cases you would no longer be able to recover them.
Tip: Read our article about the position of a creditor in Czech law.
If you are owed money by a legal entity, you can publish it as a debtor on the internet on various portals where, for example, reviews of the person or company are posted. A good option is also to publish it in the Central Register of Debtors. In this case, however, you must be sure that you are in the right and should inform the debtor of this step.
It may only be a few hundred and you feel that this haggling is not worthwhile. But if everybody says this, then the debtor will never get justice and eventually there will be an awareness in society that the invoices don’t actually need to be paid because nothing will happen.
Furthermore, if this situation happened to you several times, then it would no longer be just a few hundred, but amounts that could get you into financial trouble. Therefore, never get ripped off and try to come to a fair solution.
Need help with filing a lawsuit or representing yourself in court? Whether the litigation is just beginning or the case is well underway, we can help you with everything. We will conduct a thorough analysis, assess your realistic chances and suggest a course of action. All this within 48 hours of ordering our services.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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