It's been a while since I started this thread but I now have a final result for what happened, how it was dealt with and what the company were liable for. Although this is relevant in the UK, I would suggest that the contract law concerned may be applicable in other countries.
Firstly, the circumstances ar as described; the company asked me do complete some photograpy, which I did, then they refused to make payment, stating that they were not happy with the quality. Despite negotiations, the company completely refused and returned the discs.
Some months later, I found that the company were using my images. After checking all their sites, they were using 83 images and had repeated them 350 times throughout their sites.
Initial contact with the company led to them sticking to their story that they were not paying. So, it was onto the lawyers. A family friend has some experience in this area so made a few calls to some other lawyers.
Legally, the position was that the company had breached the contract by taking the images and not paying for them. In addition, as they were now using them without my permission, they were also in breach of my copyright.
I wrote to the company pointing this out and they offered £6.44 ($10) for 50 images, stating that that was the going rate for stock images from istock. As you can imagine, this was refused for the obvious reasons and a counter offer made.
The end result? I got the £700 that I was owed, they got the discs and use of the images under licence.
I could have taken it all the way to court and would have had a solid case, but getting what I was owed in the first place was enough for me and meant that there was no rik of loss, no more stress and worry and I can move on.
All in all, a very important lesson learnt and hopefully, for those that have read this, something that can be avoided. Next time, there will be a written contract, line agreement and firmer timelines.
Thank for everyone who commented too.