How To Deal With Late Payments

Allison S Robinson | 17 January 2022 | 2 years ago

How to deal with late payments

If you are struggling with consistently late payments from customers and could use some easy ways to prevent the impact that unpaid invoices have on your business, read on to understand how to deal with late payments. 

  • Set yourself up to succeed by invoicing correctly and on time. 
  • Communication is key, share payment terms upfront 
  • Chase overdue invoices promptly and professionally 
  • Negotiate shorter payment terms if dealing with large corporations 
  • Know your statutory rights and how to ensure they’re met 
Cash flow is at the heart of all businesses and is particularly important for small business owners as invoicing promptly and being paid on time is a key part of keeping your business in a good place financially. 

While debt recovery processes should be ingrained into your business procedures, it can often be one of those things that you don’t realise you need until you really need them. For this reason it pays to consider how you will deal with missed and delayed payments before the issue becomes a reality and causes real issue with your ability to pay your suppliers and staff. 

To minimise the chance of late payments damaging your business, the simple tips below will ensure you have plenty of ways to proactively reduce the risk of late payments, and also know how to act when you do need to recover a missed or late customer payment in the future. 

Set Yourself Up To Succeed With Accounting Systems 

If you are providing products or services to customers, you expect and deserve to be paid promptly for the time, work or goods delivered. Having to run around in circles chasing payments and being fobbed off with excuses everywhere you turn isn’t fun for anyone, especially if you’re already wearing multiple hats and have a very busy workload like most small business owners do.  

For this reason, our first tip for dealing with late payments is that prevention is often better than cure. By this, we mean that one of the best ways to get paid on time is to set up your invoicing system in a way that takes the hassle out of day to day accounting such as sending invoices, managing late payments, sending out invoice reminders so that you don’t have to. 

By using professional accounts software like Xero, Sage or Quickbooks instead of manually creating your invoices every time you need them, you can ensure that you have professional invoice templates with the correct bank details and payment terms ready to use, can utilise automated reminders and app features to streamline your day to day invoicing and debt chasing tasks.  

Taking the time to set these things up in advance will ensure that you are properly set up to invoice correctly, easily and on time. This in turn means that you are doing your part in reducing the chance that you will be paid late.


Communication Is Key – Share Your Payment Terms 

terms of payment highlighted in passage of text

You should have your payment terms clearly outlined and shared in any goods or service contract that you provide before starting work and you should share these terms again on the invoices that you send out. Clearly communicating your payment terms in this way means that the people responsible for paying your invoice can’t claim that they didn’t know what your payment terms were as a reason for not paying. 

As part of your payment terms, you may choose to request deposits for larger orders or projects so that you are guaranteed some proportion of the payment in advance of work starting or materials being ordered. You can also decide how quickly you want to be paid, whether you will charge interest on late payments or offer discounts for early payments. 

Whilst you can decide upon and set your payment terms, you can’t control whether customers will adhere to them or not. Whilst in most cases, customers will do their best to meet them, especially if you have built a good working relationship, in the case of working with large corporations, small businesses are often at the mercy of their customer’s payment terms. 

This means that invoices with a short payment window are sadly unlikely to be paid on time when dealing with bigger companies that can often have a 90-day payment clause. It’s especially important in these situations to build strong relationships with your client so you stand a chance of negotiating shorter payment terms for your business. 


Chase Overdue Invoices Promptly

If your payment terms haven’t been met, and your invoice is now overdue, it is in your interest to chase any overdue invoices promptly. Not only will this give you the best chance of being paid in the near future, but it also makes the customer aware of the problem. 

In some cases, a gentle reminder may be all that is needed to prompt payment, particularly if the invoice has been misplaced or genuinely missed in a busy inbox or during annual leave for example. To be even more proactive, you can set your accounts system to send invoice reminders before the due date to try and prompt payments being made on time. 

It is recommended that invoice chasing is done via the telephone rather than email. That way you will know that you have spoken to somebody that can help you rather than sending an email and not knowing if it has been read or not. Always keep the conversion polite but to the point, and frame it as a courteous reminder rather than a demand for payment. You may also want to follow up with an email to recap the points discussed in writing. 

Tips for invoicing chasing:

  • Remain calm and professional and don’t be afraid to raise the issue 
  • Remind the debtor of the invoice number, when it was sent and the payment due date
  • Offer the resend the invoice for reference 
  • Ask them when they expect payment to be made 
  • For very large invoices, you may want to follow up with the customer straight after sending the invoice to advise that it has been sent and to check that they have received it. This action in itself may reduce the need to manage a late payment further down the line. 

Dealing With Regular Late Payers 

Filing cabinet with cash flow tab

If you have a customer or several customers that consistently pay you late or trot out the same excuses as to why they can’t pay you every time an invoice is due, then you may ultimately have to decide if this is something that you’re prepared to put up or whether it’s time to take a firm stance against this behaviour.  

If the impact of late payments is causing issues with your cash flow and preventing you from paying your invoices, then it’s time to consider whether the customer is worth having or if there are ways that you can carefully manage the situation to your benefit. 

Options include: 

  • Choosing to keep the customer but change the payment terms on their account. It may be that if you switch to upfront payments before goods or services are delivered instead of a credit account then you could see an improvement in how swiftly payments are made. 
  • Speak to the customer directly and ask them if there is a genuine reason that they are unable to pay you on time. If it’s just bad accounting on their part, then you may decide the time spent chasing payments versus the value of their orders just isn’t worth it. 
  • Before deciding to stop working with a customer over consistently late payments, consider the value they bring to your business outside of monetary terms. Could you win new business from the same industry by having them on your books? 

You Can Negotiate On Long Payment Terms 

As we mentioned earlier in this article, when working with large corporate companies that have long payment terms as standard, it can impact the time when your invoices are paid.

Large companies often have 90-day payment terms which can be very damaging to smaller businesses that rely on prompt invoice payments. If longer payment terms like this are putting the brakes on your business growth or causing you to take out loans to cover expenses whilst waiting for payment, then you may want to try negotiating the length of payment terms with your customer. 

If you explain the situation that their delayed payments are causing, many accounting teams are happy to add smaller companies to more regular payment runs so it’s always worth asking the question. The worst they can say is no! 


How To Recover Money Owed 

Invoice with overdue stamp

Tried all the steps above to be proactive, negotiate payment terms and chase overdue invoices, but still, regularly find yourself out of pocket and waiting for invoices to be paid? Business owners in this position will need to consider putting more official debt recovery processes in motion by exercising their statutory right to be paid. 

If taking this route, you should contact the customer in writing to let them know that you will be taking debt recovery action if payment hasn’t been received by a certain date. This gives them one last chance to pay and maybe enough to get the payment made. If this doesn’t work and they still fail to settle the invoice then you should stop supplying any further goods or services until your invoices have been paid.

If you’ve done everything that you can do, and the debt remains unpaid, then you can always resort to legal action. You will also need to consult the services of a solicitor if the debt is over 6 years old. Although this is never anybody’s preference, the longer a debt remains unpaid, the more likely it is to turn into bad debt which will need to be absorbed by your business. 


Know Your Rights 

When it comes to invoicing, business owners have the right to set their payment terms such as discounts for prompt payment, payment upfront, penalties for late payment and payment due dates. 

If you don’t agree on payment due dates with the customer in your terms of engagement, the default is that the customer must pay you within 30 days of you sending your invoice for the goods or services delivered. 

If your customer fails to stick to this timeframe then you can use a statutory demand without the need to use a lawyer to formally request the money that you are owed. 

Upon sending a statutory demand to your customer, they have 21 days to either pay the bill or agree on a way to make payment with you such as smaller instalments. If the customer doesn’t respond or make payment then you can apply to bankrupt their company. 


Related Questions 

What Is Bad Debt 

man with calculator and papers on desk

Bad debt refers to outstanding invoices or balances that are deemed to be no longer recoverable and must be written off. Examples of when this might occur when a customer you are working with becomes insolvent. 

You can reduce the chance of having to absorb bad debt into your business by following the steps outlined above regarding prompt invoicing and debt chasing above. You can also choose who you do business with very carefully. 

Although none of us knows what will happen in the future, when taking on a new client, running a few simple checks on them can save you a world of difficulty later down the line. Taking a few minutes to check the public accounts and business registration details can give you the confidence that you’re dealing with a reputable customer. 


My Cash Flow Is Impacted By Late Payments

Chasing overdue invoices isn’t just annoying and time-consuming, it can also severely affect the cash flow of your business which in turn can have huge repercussions on its growth and success. If you are unable to pay your suppliers or staff due to late invoice payments then you should talk to your bank and suppliers as soon as possible. The earlier you address the issue openly and transparently, the more that can be done to help you and the more understanding people will be.  



We hope that this article has helped you to understand how you can minimise the chance of late payments damaging your business, given you plenty of simple tips to proactively reduce the risk of late payments, and the knowledge of how to act when you do need to recover a missed or late customer payment in the future. 

Knowing how to deal with late payments can ultimately help to keep your cash flow healthy, save you time and reduce the chance of bad debt. The best way to deal with late payments is to:

  • Be proactive and have systems in place that ensure your invoices are correct, sent on time and followed up automatically if they’re not settled by their due date
  • Have payment terms and communicate these with your customer. This can be done via your service agreement, when discussing the work or project in person before the job begins and when sending your invoice. 
  • Chase overdue invoices promptly and professionally. Often a timely reminder that payment is due will be enough to get the fund deposited into your account  
  • Consider negotiating shorter payment terms if dealing with large corporations to prevent your cash flow from getting stuck.  
  • When customers consistently pay late or fail to make payment entirely, it pays to know your statutory right to be paid and how you can ensure that this is met with either a statutory demand or legal services.  



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