Unpaid invoice: a step-by-step routine for owners

Step one is to check your own side. Before you ask for anything, confirm that the work was delivered and accepted, that the invoice carries the right name, amount and tax details, and that it actually reached the person who pays. Look at what you agreed on price and payment date, and ask whether there is a complaint about quality that you have not answered. A customer who has an unresolved grievance will use it, and you want to know that before the conversation, not during it.

Step two is the first reminder, and it should come the day after the due date, not the month after. Keep it friendly. Call or message to ask whether the invoice arrived and whether anything is holding it up, such as a missing purchase order number or an approval. Send the invoice again. Ask for a specific date. A message such as 'I am following up on invoice 123 which was due on the 5th; could you tell me when to expect payment?' is ordinary and professional. Whatever was said on a call, send a short written note afterwards, so that there is a record in your own words with a date on it.

Step three is a firm written reminder, usually a week or two later if nothing has happened. State the invoice number, the amount, the original due date and the date by which you expect payment. Say plainly that you will pause further supply until the balance is cleared. Stopping new work is not hostile; continuing to supply someone who is behind simply increases what they owe you. If the customer has a genuine cash problem, offer a payment plan, but put it in writing, with dates, and ask the customer to confirm the amount due. Keep the tone civil, and never threaten or contact the customer's family or employer, which can create legal trouble for you.

Step four applies only if you are a micro or small enterprise. The Micro, Small and Medium Enterprises Development Act, 2006 sets a time limit on how long a buyer may take to pay a micro or small supplier, interest on late payment, and a reference to a Facilitation Council. Eligibility depends on your status and the facts, and registration on Udyam is part of establishing it, so ask your accountant or lawyer before relying on it. One practical point has changed. The MSME Samadhaan portal's home page now carries a notice that all new delayed-payment applications are to be filed on the MSME ODR portal, odr.msme.gov.in. Look at the official portals for the current process before you file. Medium and large suppliers are not covered by these particular provisions.

Step five is for cheques. If a cheque you received comes back unpaid, a separate and strict set of time limits can begin to run within days, under section 138 of the Negotiable Instruments Act, 1881. It is a criminal complaint route with conditions, not a general collection tool. The practical rule is simple: speak to a lawyer the day the cheque returns, and do not wait to see whether the customer pays.

Step six is to understand the clock. For many money claims in India the general limit for filing a civil suit is three years from when the payment fell due. A signed written acknowledgment of the debt, or a part-payment, can in some circumstances give a fresh period, which is one reason to ask a customer to confirm the amount in writing. But do not rely on that without advice, and do not let a debt sit for years on the hope that it will resolve. For many commercial disputes a mediation step may also be required before a suit can be filed. A lawyer will tell you how both apply to your case.

Step seven is a lawyer's notice, and here cost and judgement matter. A notice can focus a customer's mind, but it can also harden positions and cost money. Court takes time, and no result is guaranteed. Ask what the debt is worth, what the process will cost, whether the customer can pay at all, and whether you would sooner have a smaller sum sooner. A settlement for part of the amount, agreed in writing, is sometimes the sensible outcome.

Step eight is knowing when to stop. Set in advance how much time and money you are willing to spend on any one debt, and write it down, so that you decide with a clear head rather than in the heat of the moment. If you stop, stop supplying that customer. Ask your chartered accountant how an unpaid invoice affects your GST and income tax position, because you may already have accounted for tax on a sale you have not been paid for, and the rules on relief are specific.

Finally, learn from it. Ask which would have changed the outcome: a written agreement with a clear payment date, an advance, a credit limit, a quicker first reminder, or no credit for a customer who had paid late before. Preventing the problem through contract terms is cheaper than every step above.

Keep a simple log for each overdue invoice: the date of each message or call, what was said, and what was promised. If it ever reaches a lawyer, that log will be the first thing they ask for.