How to deal with late payments

Late payments are a frequent problem for many businesses but effective credit control can help.

More than half (54%) of the UK’s small and medium sized businesses are suffering as a result of late payments. According to research from Pay UKLink opens in a new window, an estimated
£23.4 billion of late invoices are owed to these firms.

It’s a perennial problem that not only has an impact on your cashflow but also wastes valuable time as you chase unpaid invoices.

If those late invoices become bad debts, they can leave your business struggling to survive.

The good news is that effective credit control can help you keep on top of late payments and reduce the likelihood of this happening.

Effective credit control +

More effective credit control procedures can go some way to alleviating the problem of late payments.

At the very least, you can do the following:

Carry out credit checks

You could run credit checks on businesses before accepting them as new customers.

Review payment terms

Negotiate payment terms that suit your business from the start of a trading relationship. For example, you could negotiate to receive 50% cash upfront, with the balance to follow upon delivery or once the service is complete. (See the case study below.)

If a prospective client won’t agree to your terms, it may possibly be a red flag. Whatever you decide, make sure the terms are clear and documented and get the client to agree in writing or via email.

Analyse debtors

Late payment is very common. It can be tempting to give in and accept it as part of life. But don’t. Review outstanding invoices regularly. Highlight the ones that are the furthest overdue, and the ones that are worth the most. Make a plan to sort them out.

Automate invoicing and follow up

It should go without saying that your invoice shouldn’t contain any errors. Furthermore, if you have late-paying clients, you’ll become very familiar with following up. This can be a time-consuming chore, so you should consider using a software package that can automate invoicing and follow-ups. These programs even have collection templates.

Leverage relationships

It’s probably a good idea to build a friendly relationship with the person in the finance department who pays your bills. Even if they’re just an administrator, they may give you some insight into why any payment has been delayed.

Stay cool

Whatever you do, don’t telephone debtors in an angry mood and start to threaten them. They may also be having issues with late payments. Making forceful demands risks alienating the people who owe you money, when you should be persuading them.

Can the Small Business Commissioner help? +

If your business has customers who are late with their payments, you can contact the Small Business Commissioner (SBC) for help with getting the issue resolved.

The SBC:

  • considers complaints from small businesses (those with fewer than 50 staff) about payment problems they are encountering with their larger business customers (those with more than 50 employees)
  • makes non-binding recommendations on how the parties should resolve their disputes

It won’t get involved if litigation is underway between the parties.

The SBC also has advice on what you can do to get invoices paid on time.Link opens in a new window

When a person or business owes you money, you have a number of other options. Visit the GOV.UK websiteLink opens in a new window for further information.

Chasing late payment from overseas +

Chasing late payment from overseas can be an area of concern for businesses that trade internationally.

UK Export Finance has a working capital schemeLink opens in a new window that allows exporters to get paid upfront.

In addition, if you have issues with a country overseas that you’d like to discuss, the Department of International Trade (DIT) has local trade offices around the UK where you can contact a trade adviser for adviceLink opens in a new window.

The current guidance on recovering debt from the European Union (EU)Link opens in a new window may be out of date by 1 January 2021.

At the time of writing (November 2020), details on the options available for dealing with late payments from EU businesses after 1 January 2021 aren’t yet available. You can monitor this section of GOV.UKLink opens in a new window, which provides official government help and support if your business trades with the EU.

Case study – Fresh Cut Video +

Harry Pill owns and runs Fresh Cut VideoLink opens in a new window, a specialist video production agency based in Oxford. He provides insight from his own experience.

“Late payments can be devastating for small businesses, especially service providers like me. I work in video production and when I was starting out, I remember suffering in silence when clients took many months to pay because I didn’t want to sour the relationship and jeopardise future business. As I became more experienced, I learned that some companies freely take advantage of this and honestly, there’s not much you can do until you’re big enough to risk losing future work in order to stand up for yourself.”

So what has Harry done?

“I’ve implemented a 50% upfront policy for payment, meaning that I require payment before I begin work – halving my risk. In addition, my financial management software has an auto-chase function for late payments that helps to ensure invoices are paid on time and also removes the stress of having to chase clients myself. These two things together have helped to drastically improve my cashflow – making it more easy to predict and plan for my business to grow.”

Additional support +

Small Business Commissioner (SBC) Link opens in a new window

The website of the independent public body set up by the Government to tackle late payment and unfavourable payment practices in the UK private sector.

Information for companies trading with the EU (GOV.UK) Link opens in a new window

Government help and support if your business trades with the European Union.

Regional support

Enter your postcode to find business support and case studies from businesses within your region. You'll be taken to our interactive map.

Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.