What to do if your friend owes you money

Are you in an awkward situation where one of your friends owes you money?

Whether you’ve loaned them £10 for a taxi or £1000 for a car, it’s annoying when your mate conveniently forgets to give you the money back. What’s even more uncomfortable is casually trying to bring it up in conversation, without feeling like a nag. In this article, we discuss how you can get your money back without ruining your friendship.

We all know that if resentment is left to stew, it can damage a relationship. Research carried out by mobile payment service Paym shows this has happened to many Brits, with around 20% of us falling out with friends over money at some point. 

That said, VibePay found only 24% of the men and 14% of the women they surveyed would be willing to confront friends over debts owed. According to the founder of VibePay, “As a nation, we find it excruciatingly uncomfortable reminding a friend they owe you money. Yet, this reluctance is not just leaving a big hole in our pockets, it’s also destroying friendships.”

So, how do we get over British politeness to get our cash back without hurting anybody’s feelings?

The first thing to do is to have a friendly chat. It can be easy for conversations to get heated when it comes to money, so try and remain calm and meet up in a neutral place where you both feel comfortable. Have empathy with the other person and remember they may feel embarrassed if they can’t afford to repay you at the moment. 

Don’t put this off for too long or allow it to grow into a full-blown grudge. It might feel a bit cringey, but these things are better done in person, as written messages over text and email can often come across in the wrong way. 

Lloyds Bank have carried out research on this topic, which revealed that 50% of the adults they spoke to thought money was a taboo subject. So Lloyds have teamed up with the charity Relate to launch a campaign called ‘The M Word’ to get more people talking about their finances. On their website, Relate gives some tips on how to open up about money, such as taking turns to speak and making sure you listen to the other person. They also suggest that you are open to making some compromises as people rarely see eye-to-eye on this matter. Relate also provides online services and counselling if you need more support surrounding your relationships.

But what happens if you ask for the loan back and they still don’t pay up?

Research carried out by VibePay suggests that it often takes two conversations with friends to remind them that they owe you money before you get it back. So if it doesn’t work the first time around, try again. 

If your mate says they still can’t afford to repay you, there are a few avenues you could explore:

1. Request a token payment of a smaller amount to tide you over
2. See if they could do an odd job for you in lieu of payment
3. Agree a repayment plan where they pay you by regular affordable instalments 
4. If they are already paying in instalments, allow them to take a payment break until a specified time

Also, think about how much you’re owed in total. If it’s a small amount, next time you go out with them perhaps they could pick up the bill? 

If you want to pursue things further, there is the option of writing them a formal letter requesting the funds back. Or you could try mediation with the help of a non-judgemental third party. 

As a last resort, some people decide to go down the legal route. Be aware that court fees will be applicable if you take legal action, and this method only makes sense if your friend actually has the funds to repay you. We suggest you seek legal advice if this is something you want to look into, or contact the Citizens Advice Bureau for free.

You may be thinking all this aggro isn’t worth it. Ask yourself if it’d be better to write off all or part of the debt, for the sake of your friendship. But also consider if they’ve borrowed money from you in the past and not paid it back. You don’t want to set a precedent where you end up being walked all over, which will only increase resentment in the long run.

This is why it’s best to set boundaries from the start. If your friend asks you for money, you don’t have to agree to it. Don’t go ahead with anything you feel pressured in to. Find out:

• Why do they need the funds? 
• Are they in financial difficulty? If so, will this be adding to their debt?
• How much do they want to borrow?
• Can they afford to pay you back? How and when?
• Have they got a good history of paying people back?
• Can you afford to give them the loan? Work out your own budget here.
• Would you still be able to cover your own expenses if they don’t repay you? 

If you or your friend are struggling financially and this is why they have approached you, it might be best to contact a free debt service like the Citizens Advice Bureau or StepChange.

If you do agree to lend your friend some money, it’s wise to set a deadline for repayment and either request the amount in full or in regular instalments. For example, if you lend them £100, ask if they’ll pay you back in one go by a specific date, or if they’ll pay you in increments over a certain number of months (whatever you both agree is affordable).

One thing to bear in mind is that if you charge interest on the loan, you will have to declare it to HMRC for tax purposes, as it’s classed as additional income.

It’d be ideal if you could get the agreement in writing, in case you ever need to use it as evidence in future. Transferring them the money by bank transfer, instead of cash, is also good for record-keeping. 

Ask if they can set up a standing order or direct debit so you receive payments automatically into your bank account, removing the need for regular reminders. You will also be able to keep track of the payments they are sending you. 

There are also free mobile payment apps available, like the above-mentioned VibePay and Paym, as well as others like ApplePay. You could ask your friends to download one to remove any fuss in repaying you. No bank details are necessary as these apps sync up with the list of contacts on your mobile. All you need to do is enter the name of the person you want to pay and the amount and bingo.  

The main take-away from this is that lending to friends comes with risks. They may not pay you back on time or at all, and it could jeopardise your friendship, so think hard before you agree to go ahead. If you are already in this situation, try reaching out to your friend and explain why you need the money back, as a first step. If this doesn’t work, follow the steps set out above to try and come to an amicable agreement.