How many of your invoices are paid on time? How many do you have to chase for payment? For small and medium-sized business owners, late payments can be more than just a nuisance—they can seriously affect cash flow, disrupt operations, and even threaten the survival of a business.

Unpaid invoices mean you might struggle to pay your own suppliers, staff, and overheads. However, with the right documentation and processes in place, you can reduce the risk of late payments and improve your chances of being paid on time.

What are the risks of late payments?

• Cash flow problems – Delayed payments can make it difficult to cover essential expenses, such as rent, salaries, and supplier costs.
• Time wasted chasing payments – The time spent following up on overdue invoices could be better used to grow and manage your business.
• Strained business relationships – Chasing payments can create tension between you and your customers, potentially harming long-term relationships.
• Risk of non-payment – If a customer is experiencing financial trouble, there is always a risk they may not pay at all and you end up with a debt to write off.

Steps to reduce the risk of late payments

Set clear payment terms

From the outset, ensure your customers understand when payment is due. Clearly outline your payment terms on contracts, agreements, terms of business and invoices. Common terms include:

• Payment due within 7, 14, or 30 days of the invoice date
• Late payment fees or interest charges for overdue invoices
• Accepted payment methods (e.g., bank transfer, direct debit, or online payments)

Invoice promptly and correctly

Delays in sending invoices can lead to delays in payments. Ensure your invoices are:

• Sent as soon as work is completed or products are delivered
• Accurate, with clear details of the goods/services provided
• Addressed to the correct person or department to avoid administrative delays

Consider automated invoicing and payment systems

Accounting software like Xero, QuickBooks, or FreshBooks can automate invoicing, send reminders, and even accept online payments, making it easier for customers to pay promptly.

Establish a prompt follow-up process

Credit control is a crucial function within a business. Don’t wait until an invoice is overdue before taking action. Instead:

• Send polite reminders before the due date
• Follow up immediately after the due date if payment hasn’t been made
• Increase the urgency with each reminder, starting with a friendly nudge and escalating to a firm request – use a combination of telephone call and email reminders as different methods work with different people.

Offer incentives for early payment

You could consider offering small discounts for early payments to encourage prompt settlement. For example, “2% off if paid within 7 days.” This might not be possible with your profit margins, but worth considering as a tool to get invoices paid quickly, which benefits your cash flow.

Request deposits or partial payments upfront

For large projects or high-value orders, ask for a deposit before starting work or require milestone payments at different stages of the job. This is particularly important if the contract requires you to spend money to source products or goods, you will want to ensure that a deposit is paid to cover your initial outlay for materials.

Have a late payment policy in place

Make it clear that overdue invoices will incur interest or late fees, as permitted under the Late Payment of Commercial Debts (Interest) Act 1998. This can deter slow-paying customers. This is something that should be covered clearly in your terms of business.

Perform credit checks on new customers

Before extending credit, check the financial stability of new customers using business credit reports. If in doubt, request full or partial payment upfront.

Use a debt collection service or legal action when necessary

If an invoice remains unpaid despite multiple reminders, consider:

• Engaging a debt collection agency
• Issuing a formal Letter Before Action (LBA)
• Pursuing a claim through the Small Claims Court

If you are pursuing a debt formally, the earlier you take action the better the prospects of recovering the money, so the best advice is not to delay.

Final thoughts

While late payments can never be completely avoided, taking proactive steps can significantly reduce the risk. By setting clear terms, using automation, following up consistently, and having a firm but fair policy in place, you can protect your business and improve your chances of getting paid on time.

Top tip : don’t delay in tackling overdue invoices, the earlier you deal with it the better the chance of recovering your money!

If you need advice on your terms of business or invoicing arrangements, feel free to get in touch with Sarah Naylor on 01302 320621 or at sarah.naylor@switalskis.com