Customer hasn't paid: a step-by-step recovery plan
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Updated 03 Oct 2026
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From a polite reminder to legal action: the practical steps, time limits and accounting for unpaid invoices.
6 sections
Step 1: Gather your proof
Before you chase, make sure you can prove the debt:
- Purchase order, contract or email confirming the order and payment terms.
- Tax invoice, delivery challan, e-way bill and signed proof of delivery (or proof the service was accepted).
- Customer ledger and any balance confirmation.
Step 2: Follow up in stages
| Days overdue | What to do |
|---|---|
| 1 to 7 | Polite reminder with the invoice copy and an account statement |
| 15 | Call and email; ask for a firm payment date in writing |
| 30 | Escalate to the owner or finance head; pause further credit or supplies |
| 45 to 60 | Formal demand letter or legal notice through an advocate |
| 60+ | Pick a legal route from Step 3 |
Keep everything in writing. A written acknowledgement or part payment by the customer restarts the limitation period.
Step 3: Choose the right route
| Route | Use it when |
|---|---|
| MSME Samadhaan | You are a micro or small enterprise registered on Udyam when you made the supply, and the buyer has crossed 45 days. The buyer owes compound interest at three times the RBI bank rate, and must deposit 75% of any award to challenge it |
| Cheque bounce case | The customer's cheque was dishonoured. Send the legal notice within 30 days of the return memo |
| Summary suit | You have a written contract, invoices accepted in writing or a dishonoured cheque. The customer needs the court's permission to defend, which speeds things up |
| Commercial suit | Disputes of ₹3 lakh or more go to the commercial court, after pre-institution mediation unless urgent relief is needed |
| Insolvency (IBC) | The unpaid amount is ₹1 crore or more and the customer can pay but won't. Use with care: it is a serious step |
Time limit: a recovery suit must generally be filed within 3 years of the due date.
Step 4: Get the accounting and tax right
- GST: you paid GST when you issued the invoice. Non-payment by the customer doesn't give you a GST refund. Issue a credit note only if you actually reduce the price or take goods back.
- Bad debt: when recovery is unlikely, write it off: Bad Debts A/c Dr, To Customer A/c. It is deductible for income tax because the sale was already shown as income.
- Interest received under the MSME law or a court decree is taxable income.
- Cheque bounce charges recovered from the customer: see the linked guide.
Step 5: Stop it happening again
- Set a credit limit and credit period for each customer.
- Take an advance from new or slow-paying customers.
- Review receivables ageing every week.
- Large buyers: offer invoice discounting on TReDS or consider credit insurance.
Related
- Receivables and payables ageing
- MSME payments and Samadhaan
- Cheque bounce under section 138
- ECS/NACH bounce and civil recovery options
- Bad debts and provision for doubtful debts
Legal routes have strict formats and deadlines. Speak to an advocate before sending a legal notice or filing a case.
Sources
- Negotiable Instruments Act, 1881 (sections 138 to 148: dishonour of cheques)
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