Unpaid invoice, suspended services possible legal action against me

[anonymousseeker]

Hello, I have been directed here by reddit's /r/legaladviceuk I hope someone could advise me.

I have had an issue on going with a client since the 10th of September 2015. Keeping to the facts, I am a 3 month old startup company registered as a sole trader in the UK.

I raised an invoice to a client who approached me after creating and finishing the project from their brief. The clients company is a father and son operation with both registered as directors with companies house. The father had a disagreement and as such decided when the project was about to go live that it needed to be started again from scratch and they were not paying invoice #1.
Now sadly this client has been a friend of mine for many years and as such I did this as a favour to him and put no terms and conditions in place, everything was verbal. (I have learnt my lesson for future partnerships).

After a few weeks with no contact from them I sent invoice #2 with some of the other services removed purely to get some form of payment. This got no response but the invoice was paid leaving roughly £420 remaining unpaid. A further six weeks passed with no contact from them about how they wished to proceed and ultimately how I can be paid. It was at this point I sent another email and invoice #3 attached stating that it is no longer viable to wait for them to contact me on how they wish to proceed and give the project closure.

Invoice #3 had the remaining £420 split into two separate payments that were due on the 18th and 28th of December if these demands were not met then I would have to suspend their services until the balances were paid. Another reminder was sent 48 hours before the first due date. The date came and passed with no reply and no payment so I did as clearly stated and suspended their services.

Now to be clear I have been more than patient at every stage and given ample time to respond and discuss this with me but I never receive any reply. Client has now finally got in contact with me after this and is saying that I do not have the legal right to suspend their services despite the outstanding balance and that he is going to contact his solicitor who I will be hearing from in the new year and that he is seeking damages against me and my start up.

Client paid for invoice #2 which was for the service I have been forced to suspend however the remaining balance from invoice #1 still remains in credit and the project unfinished due to no action on their part. What are my options here? Am I legally allowed to suspend his services due to him not paying the outstanding balances? I believe I am as he owes me money but I need clarification on this.

The outstanding balance is only £420 it would be far cheaper and significantly less hassle for him to pay this than start legal proceedings against me. I believe his rather lengthy threatening email to be a bluff and a scare tactic as he knows I am a young and new to running a business. However I want to be 100% certain that I am in the right before I respond to this, I am going to seek help from Citizens Advice Bureau but thought that it would be worth while posting this here to seek advice from others who may have been in a similar situation before.

I was advised by a reddit user to ensure I am adding late payment fees into your contract and on top of the invoice as per the regs. Could somebody please explain if I am allowed to do this as there is no physical paperwork in place and what the best method of response is

Many thanks for reading

[cojak]

Right - this is simple bullying on the part of the client who I think is bluffing in order for you not to progress the last payment (and to get his services back).

IANAL, but we have a poster on here, Safe Collections, who will be able to advise, otherwise if he doesn't appear other posters will turn up with hangovers (and advice).

My own advice is don't panic - this will get straightened out.

[BolshieBastard]

Alternatively, the OP could send one more final demand \ request for the outstanding balance within x days else he will start small claims court proceedings.

For such a small amount, Id question whether a collections agency is the way to go.

Action through the small claims court is easy, you just need to be able to prove you've tried all reasonable approaches to get the outstanding money.

[cojak]

Alternatively, the OP could send one more final demand \ request for the outstanding balance within x days else he will start small claims court proceedings.

For such a small amount, Id question whether a collections agency is the way to go.

Action through the small claims court is easy, you just need to be able to prove you've tried all reasonable approaches to get the outstanding money.

I thought that Safe Collections will be able to provide advice - it does sound fairly straightforward,

[cojak]

In the meantime, this might help:
When IT contractor clients don’t pay - a step-by-step guide :: Contractor UK

[psychocandy]

OP - when you say suspend services do you mean you not doing any more work or are you suspending something - like a website?

Must admit no contract in place, find it hard to believe they think they can sue you, especially as you've not been paid.

Not a huge amount of money - worth a punt at small claims BUT I'd be tempted to tell them no more anyway because I dont think they want to pay ever.

[Safe Collections]

Hi anonymousseeker,

We aren't solicitors so can't give you legal advice, but we see situations like this with regularity so suspension of services is something we do have more than a little experience with...

Having read your post the key question here is as you state "Am I legally allowed to suspend his services due to him not paying the outstanding balances?"

Lets say for example that invoice #1 consisted of four parts A, B, C and D. This is not paid and the client halts the project.

You subsequently issue invoice #2 to the client, this consists of parts B and D from invoice #1. This invoice is paid by the client.

You then issue invoice #3 to the client for the remainder of invoice #1 (parts A and C) with an ultimatum that if these services are not paid for you will suspend service on B and D. This invoice is not paid by the client and you make good on your ultimatum and suspend services on B and D.

Unfortunately in situations like this the advice we have had from our solicitors is that unless you have a clear and unequivocal legal right to suspend services in the event of non or late payment, that to do so does put your company at risk of a potential claim for damages from the client. As you don't have a contract or any terms in place we feel it is extremely unlikely that you will have this right contractually.

This is further compounded by the fact that you raised invoice #2 and #3 as opposed to pursuing invoice #1 in it's entirety. If you only had invoice #1 then you could legitimately state that it is not paid in full and therefore the client is at fault, but now technically only invoice #3 is outstanding and you have withdrawn services the client has already paid for.

No doubt the client is taking advantage of the fact they have relationship with you and that you are new to business, but this doesn't change the fact they may have grounds for a legal claim against you.

Sorry for the long post, but hopefully the above will be of some use to you. Good luck.

Right - this is simple bullying on the part of the client who I think is bluffing in order for you not to progress the last payment (and to get his services back).

We agree that the client does sound like they are trying to bully the OP to get the suspended services returned and to avoid any further payment. The issue is here that with no contract in place that the potential risks to the supplier far outweigh the potential return of £420.

Even dealing with the threat of a claim for damages could cost the op more than is owed in lost time and revenue in their new business.

[anonymousseeker]

Hello All,

Thanks for the speedy replies. To clarify there are two services, web development and web hosting as it currently stands the hosting is suspended.

Although no physical contract in place I have been told verbal agreement is enough and I have records of project briefs, in person meetings/email trails regarding me carrying out further work for them all for which suffice as an order of work/services.

I have been to see CAB this morning and was told that because there has been no contact from the client and a sum transferred into my account with no payment reference at all then I am allowed to assume that the sum they transferred me was part payment for Invoice #1 and as such I am allowed to suspend the hosting. There was also the suggestion of responding to this by sending a formal letter before action via signed for post.

I was also advised that damages are extremely limited as their current website is not used as a marketing tool. I have no assets at all and to be honest I am not sure he has a case for damages.

Regarding the outstanding balance of £420 I have been told that a small claims is the way to go at a cost of roughly £60 however if I keep the hosting suspended I am sure he will pay just to get the hosting re-instated which is ultimately what I want.

Just to make sure, as there was no contact from client regarding anything being paid and no bank transfer reference am I allowed to safely assume that it was part payment for #1?

I am considering a 1/2 hour consultation with a solicitor however I think from various internet resources and CAB I can deal with this myself.

Thanks all of you for your contributions so far

[Safe Collections]

To clarify there are two services, web development and web hosting as it currently stands the hosting is suspended.

So if the client didn't pay for the design what are you hosting? The client's existing website?

Although no physical contract in place I have been told verbal agreement is enough and I have records of project briefs, in person meetings/email trails regarding me carrying out further work for them all for which suffice as an order of work/services.

A verbal contract is binding, the issue is proving what was said/agreed. Email trails can be useful as evidence but they are no substitute for a real contract.

I have been to see CAB this morning and was told that because there has been no contact from the client and a sum transferred into my account with no payment reference at all then I am allowed to assume that the sum they transferred me was part payment for Invoice #1

Wait a second, in your original post you stated:

The father had a disagreement and as such decided when the project was about to go live that it needed to be started again from scratch and they were not paying invoice #1.

The client has told you they are not paying invoice #1 already so why would you assume this payment is now a part payment for this invoice?

and as such I am allowed to suspend the hosting.

We have serious reservations in regard to this statement.

I was also advised that damages are extremely limited as their current website is not used as a marketing tool. I have no assets at all and to be honest I am not sure he has a case for damages.

Damages have to be demonstrable yes, but it is worth remembering that if you are a sole trader your personal assets are at risk. Plus if you issue proceedings and they defend and counterclaim you will either have to refute the damages claim yourself or hire a solicitor at your own cost to refute the claim.

Regarding the outstanding balance of £420 I have been told that a small claims is the way to go at a cost of roughly £60 however if I keep the hosting suspended I am sure he will pay just to get the hosting re-instated which is ultimately what I want.

The financial cost is £60, what is your hourly rate and how much time are you prepared to spend on this? At what point has it cost you more in lost time than the amount you hope to recover?

Just to make sure, as there was no contact from client regarding anything being paid and no bank transfer reference am I allowed to safely assume that it was part payment for #1?

No. The client told you they were not going to pay invoice #1. You issued invoice #2 and they paid this.

Now you want to ignore the fact you issued a further invoice and act like you only ever issued invoice #1 as this supports your decision to suspend the services.

I am considering a 1/2 hour consultation with a solicitor however I think from various internet resources and CAB I can deal with this myself.

Issuing a small claim is a relatively simple process, but this situation is far from ideal. You have no formal contract and you have no legal basis to withdraw services that have been paid for as far as we can see.

If you stick to your guns the client may well pay just to get the hosting restored, but they may issue a claim for the fees already paid; on the basis that you have now failed to provide the services they have already paid for.

[anonymousseeker]

Hi Safe Collections,

On their request I initiated a server move. Currently their emails and name servers are pointed to my server and the “www.” part of their domain was pointing to their old host due to a rather messy CMS system install. Someone they previously worked with set this up on their old host which is nothing to do with me. I merely forwarded their domain name from my server to their old website while the new website was being developed. Once the new website was given the go ahead to go live it would then entirely be hosted on my server.

Wait a second, in your original post you stated:


Quote Originally Posted by anonymousseeker:
“The father had a disagreement and as such decided when the project was about to go live that it needed to be started again from scratch and they were not paying invoice #1.

The client has told you they are not paying invoice #1 already so why would you assume this payment is now a part payment for this invoice?”

On the 19th of October client never explicitly stated I am not paying for this he said he would be in touch soon, I have not heard from him since the 19th of october until yesterday 20th December which is an unacceptable time to leave someone you owe money to.

I can raise many invoices but if they refuse at every stage to not reply to any of my correspondence and say "this is for Invoice X" and do not put any reference in the bank transfer how am I to know what they are paying for.

Damages have to be demonstrable yes, but it is worth remembering that if you are a sole trader your personal assets are at risk. Plus if you issue proceedings and they defend and counterclaim you will either have to refute the damages claim yourself or hire a solicitor at your own cost to refute the claim.

This man I have since found out over the past few months has a reputation for not paying people and lives pay cheque to pay cheque so as such I seriously doubt he has the financial ability to take this anywhere above a few solicitor letters, it is also worth noting that I am 23 years of age in university and as such have no assets of value above my £500 car and laptop - no savings and a very sizeable student overdraft to pay back very shortly - normally I would write off this £420 and walk away from the whole situation but to be honest I feel like he has taken advantage of the services I provided to him and his son in good faith and he is intent on making this whole situation a lot worse than it needs to be.

The financial cost is £60, what is your hourly rate and how much time are you prepared to spend on this? At what point has it cost you more in lost time than the amount you hope to recover?

To be honest I do not think I will gain anything but he seems bent on not paying me and trying to cause me additional unnecessary stress, he has a full-time business to run so it would be of more annoyance to him. Probably not worth it but I don’t feel he should be able to get away with what he has done without some form of repercussion.

No. The client told you they were not going to pay invoice #1. You issued invoice #2 and they paid this.

Now you want to ignore the fact you issued a further invoice and act like you only ever issued invoice #1 as this supports your decision to suspend the services.

This is what CAB have instructed me to do.

If you stick to your guns the client may well pay just to get the hosting restored, but they may issue a claim for the fees already paid; on the basis that you have now failed to provide the services they have already paid for.

Could it not be argued that it is not clear what they have paid for as they have included no references and not had the decency to answer the phone or reply to my emails. I had to suspend the hosting as a last resort to get some form of communication which was completely absent for 7 and a half weeks.

Many thanks for your input - greatly appreciated.