What to Do When a Customer Won't Pay Their Invoice

You did the work. You sent the invoice. And now you're waiting. Day 30 passes. Day 45. You send a polite email. Nothing. The customer isn't paying, and you're not sure what your next move should be.

You're not alone. More than a third of all B2B invoice value in Europe is overdue. Late payments are not the exception, they're the norm. Especially business clients pay structurally later than agreed. Unpaid invoices cost businesses an estimated hundreds of billions of euros per year across the continent, more than the entire GDP of Finland. And one in four European business bankruptcies is caused by late payments.

The good news: there's a clear step-by-step plan for collecting outstanding invoices. From the first payment reminder to a formal demand, to the point where you hand a claim to a third party. Each step has its own rules, and the earlier you act, the better your odds of getting paid.

Step 1: Send a payment reminder

The first step when an overdue invoice lands on your desk: send a friendly reminder as soon as the payment deadline has passed. Sounds obvious, but a surprising number of business owners wait too long. Within a week of the due date is the best time.

Keep the tone friendly and professional. Assume good intent. In most cases, an outstanding invoice is the result of an oversight, a full inbox, or an approval process that's running behind. Make sure your payment terms are clearly stated in your terms and conditions and on the invoice itself. Under the EU Late Payment Directive, the default payment term for B2B transactions is 30 days.

What your payment reminder should include:

• Invoice number and date
• The outstanding amount
• The original payment terms and due date
• A new, specific payment deadline (e.g. 7 days)
• Your bank details

The problem with email reminders is that response rates are low. Personalized messages perform about 20% better, but even then, three out of four recipients don't respond. That doesn't mean you should skip the reminder. It means you can't rely on email as your only tool.

If you don't get a response within five business days, send a second payment reminder. Short, clear, with a new deadline. Mention that you'll take further steps if payment isn't received. If a customer still hasn't paid after two reminders, it's time to switch approach.

Step 2: Send a formal demand

After two reminders without result, it's time for a formal payment demand. This isn't a third reminder with a different subject line. It's a step in the legal escalation process.

The difference: a formal demand includes the legal consequences of non-payment. In the EU, the Late Payment Directive entitles you to statutory interest on overdue B2B invoices, plus a fixed minimum in recovery costs. The exact rates depend on your jurisdiction and current central bank rates. These additional costs don't need to be announced in advance. They're established by law.

Most businesses don't know this. And most European companies don't exercise their right to claim interest, often because they're afraid of damaging the client relationship. But mentioning statutory interest and recovery costs in your demand isn't an aggressive move. It's a business fact that signals you're taking the process seriously.

At this point, a phone call is more effective than more emails. Phone contact has a much higher response rate compared to email. And resolution time drops in half: 7 to 12 days by phone versus 15 to 21 days by email. A conversation also surfaces what email can't: why the customer isn't paying.

Because when a customer doesn't pay, there's always a reason behind it. Sometimes it's simple: the invoice got lost. Sometimes there's a dispute behind it. The customer is unhappy with the deliverable and doesn't want to pay until it's resolved. Sometimes there are cash flow problems and the customer can't pay right now, even if they intend to. Is the customer not paying because they can't or because they won't? You only find out by having the conversation.

Step 3: Escalate to collections

If after reminders and a formal demand the invoice remains unpaid, and phone calls haven't produced results either, you've reached the escalation stage. The longer you wait, the worse your odds: at 60 days overdue, the write-off rate is already roughly one in ten. At 90 days, it's roughly a quarter.

Your options:

Formal notice of default. The legal basis for further action. State the exact amount including accrued interest, a payment deadline (typically 14 days), and the consequences of non-payment.

Collection agency. Hiring a collection agency is a common next step. A collection agency typically works on a no cure, no pay basis and charges a large percentage of what they recover. The average collection agency collects just a fraction of total debt placed with them. On an outstanding invoice of EUR 10,000, you'd keep roughly EUR 4,500 to EUR 5,250 after collection agency fees. Consider carefully whether hiring a collection agency is the right move for your client relationship.

Bailiff. A bailiff (or judicial officer) can serve legal documents and has enforcement powers that a collection agency doesn't. Costs are higher, but a bailiff can seize assets if the customer continues to ignore the invoice. For larger claims, this is often more effective than a collection agency.

Small claims court and legal proceedings. For smaller amounts, court proceedings can be cost-effective. Filing fees are relatively low, and many jurisdictions have streamlined processes for B2B debt collection. Legal proceedings are a last resort, but sometimes the only way to get your money.

Handing off a claim should be the last step, not the first. About a quarter of businesses have ended a client relationship over payment delays. In many of those cases, an earlier conversation could have made the difference.

Recovering VAT on unpaid invoices

Something many business owners forget: if an invoice is definitively not paid, you can reclaim the VAT from tax authorities. You've already remitted the VAT on the invoice, but the customer isn't paying. In that case, you're entitled to a VAT refund.

The conditions: the debt must be demonstrably irrecoverable. That means you need to show you've made reasonable efforts to collect the invoice (reminders, formal demands, possibly a collection agency or bailiff). Tax authorities require evidence that you've taken appropriate steps. So keep records of your reminders, demands, and correspondence. You reclaim the VAT through your regular VAT return.

When is a customer a bad debtor?

Not every customer who pays late is a bad debtor. The distinction matters because it determines your approach.

A late payer forgets an invoice, gets stuck in an internal approval process, or has temporary cash flow problems. After a reminder or phone call, the invoice gets paid. This is the vast majority of your overdue invoices.

A bad debtor is structural. The invoice stays unpaid despite multiple reminders, formal demands, and phone calls. No response, no explanation, no payment plan. Or worse: repeated promises that are never kept. The same excuses over and over, but never a bank transfer.

How to recognize a bad debtor:

• Multiple outstanding invoices at the same time, not just one forgotten bill
• No response to reminders, demands, and phone calls
• Payment promises that are consistently broken
• Constantly changing reasons for non-payment

With a late payer, invest in the relationship: call, listen to the problem, offer a payment plan. With a bad debtor, escalate faster. Every week you wait past day 60 reduces your chance of collection. The write-off rate climbs from roughly one in ten at 60 days to roughly a quarter at 90 days.

The key is recognizing the difference early. Phone contact is the best tool for that. An email tells you nothing about a customer's intentions. A conversation does.

Collecting outstanding invoices faster: prevention

The most effective way to prevent overdue invoices is consistent follow-up. Not once, not when you happen to think about it, but every invoice, every time.

Top-performing businesses in accounts receivable keep bad debt near zero. The average sits at several percent. The difference isn't luck or better customers. It's a system:

• Send the invoice immediately after delivery
• Reminder on day 5 as the payment deadline approaches
• First follow-up on day 3 after the due date
• Phone call on day 15
• Formal demand on day 30
• Escalation on day 60

Doing this manually is unsustainable for most business owners. An AR clerk can make a limited number of calls per day. With 200 outstanding invoices, the math doesn't work. So the smaller invoices get skipped, and those are exactly the ones that age into write-offs.

Combining phone calls with SMS follow-up increases contact rates by 40%. Calls with SMS follow-up improve promise-to-pay rates by 18%. But that requires capacity most small businesses don't have.

Automating the follow-up

At Dunwise, we built an AI voice agent that automates this entire follow-up process. Every outstanding invoice gets a call on schedule. The tone adjusts automatically: friendly at 7 days, professional at 30, direct at 60.

Customer says "I never received the invoice"? The agent sends it via SMS during the call. Customer agrees to pay? The payment link arrives before the call ends. There's a dispute? The agent captures the details and routes them to your team.

No collection agency. No relationship damage. No invoices quietly aging because nobody followed up.

Want to see how it works for your business? Book a demo. The invoices you end up writing off are almost always the ones nobody followed up on in time. The faster you act when a customer doesn't pay, the better your chances of getting your invoice paid.