When agencies sink with your contractor invoice: a legal guide

One of the most important things for contractors to grasp when their recruitment agency faces financial difficulties is that acting with speed and clarity is their ally.

In our many years of experience advising contractors, far too often, we see these hard-working individuals waiting, unsure of their rights, only to eventually find themselves out of pocket because they didn’t act quickly.

Contractors, take the correct legal and practical path to securing payment…

It is vital to understand the legal framework and the necessary practical steps to secure payment, which can make the difference between recovering what is owed to you as an agency contractor and losing it all entirely, writes Samuel Jenkins of Lawdit Solicitors.

Five steps to help secure outstanding payments from a struggling recruitment agency

Here are five steps that all agency contractors should take, transparently and proactively, to stand a decent chance of securing outstanding payments from a staffing business on the ropes: 

1. Verify the situation accurately and adequately

The first vital step to take is to confirm that the agency is genuinely facing financial distress.

One of the best ways to do this is to check via official sources such as Companies House for insolvency filings or creditor notices.

Time to act decisively…

In addition, you must speak to your agency — professionally — to clarify the statement of the payments, as prompt verification will allow you to act decisively rather than acting reactively and/or too late.

2. Gather the relevant information and documents

The second step is to collect all evidence of your work, including invoices and any financial documents.

This can include everything from contracts, timesheets, invoices, emails confirming your involvement and assignments, plus any correspondence concerning payment.

Formal or informal pursuit; prep a file

Gathering a comprehensive file of all documents will significantly strengthen your position, whether you pursue an informal recovery of payments, mediation or through formal legal action. It's better to be safe than sorry.

3. Communicate formally with the agency

Once you have completed documentation and have verified the situation, it is vital to send a formal payment request to the agency.

Four must-haves in a formal payment request

A well-written payment request — ideally a letter — should contain four elements:

1. The amount owed;
2. The work you have performed;
3. Evidence of the work performed or documents relating to/proving the performance, and;
4. A clear deadline for you to receive payment.

A payment request containing these four elements will demonstrate your seriousness about securing outstanding payments. It also provides a paper trail that can be useful later, if needed.

This formal communication is often the first step creditors will look for in disputes and insolvency proceedings.

4. Explore direct recovery options if you receive no response

If you unfortunately do not hear anything back from the agency, contractors still have numerous options to secure outstanding invoices.

Three options in reply to a non-responsive agency

These options include these three:

1. Engaging a debt recovery service on your behalf to professionally pursue the amount owed;
2. Raise a statutory demand, which is a formal legal step signalling that failure to pay the money could result in the insolvency proceedings, and;
3. If you still don't hear back from the agency, and they appear to show little willingness to pay, negotiate a payment plan showing your willingness to cooperate.

Ultimately, the correct approach depends on your appetite for risk, the agency's financial position and the amount of money that is owed to you.

5. Understand your rights in insolvency

If the agency enters insolvency, your status as a creditor is vital.

Contractors are often unsecured creditors, which can limit the recovery.

Know the Order of Creditor Priority

This status as a creditor is why you must know your deadlines for filing claims and understand the order of the creditor priority, which will allow you to maximise your chances of recovering the funds you are owed.

It is also worth checking if the recruitment agency holds any insurance or client money protections that could cover outstanding invoices.

Recourse, and recap, when recruitment agencies sink with your contractor invoice

In challenging circumstances, like when a recruitment agency fails to pay you on time, time itself is of the essence.

Contractors who act quickly, maintain meticulous records, and understand the legal framework can significantly improve their chances of securing payment.

While this overview provides a general roadmap which we hope will help, each situation is unique, and it is essential to get proper legal assistance. If you are facing outstanding invoices or suspect your agency may be struggling, don't wait and see; seek immediate professional advice.

At Lawdit Solicitors, we can assist through complex scenarios, providing clear, actionable guidance to protect your income.