Late invoices drain time, distract teams, and put pressure on cashflow. For many SMEs, managing late payments is now a weekly fire-drill rather than a rare exception. The UK government’s own research highlights the scale of the problem: 38 companies go out of business every day because of overdue invoices, with small businesses spending 86 hours a year chasing payment (Companies House, 2025). When customers pay late, working capital tightens, tax and payroll deadlines get riskier, and investment plans stall.

Why does this matter right now? Interest costs remain elevated and suppliers are less tolerant of poor payment performance, so every delayed receipt compounds quickly. The statutory interest you can charge on commercial late payments is 8% plus the Bank of England base rate, and you may also claim fixed-sum compensation and reasonable recovery costs – a useful lever if you set it out clearly in your terms (GOV.UK guidance). Meanwhile, the latest Business Insights and Conditions Survey shows 95% of UK businesses were trading in late October 2025 – a reminder that competitive pressure hasn’t eased, and resilient cashflow is a genuine advantage (ONS, 2025). In short, managing late payments is a practical way to protect margins and keep growth on track.

Set firm terms and make payment effortless

Most overdue invoices start with unclear expectations. We recommend tightening documents before you look at debt collection.

• Clear payment terms: State due date, accepted methods, late interest and compensation, and the right to suspend services. Reference statutory interest at 8% plus base rate and the fixed-sum compensation bands.
• Upfront onboarding: Collect billing contacts, purchase order rules, and any portal steps before starting work.
• Frictionless payment options: Offer card, bank transfer with embedded details, and direct debit. Shorten the click-path – fewer steps mean faster cash.
• Invoice quality: Use plain descriptions, correct POs, and job references. Many late payments are avoidable queries.

Where helpful, we can review your standard terms and invoice templates – start with a quick message via our contact page.

Managing late payments through disciplined credit control

A consistent rhythm beats occasional sprints. Build a timeline you can deliver every week without fail.

• Credit checks: Assess new clients’ payment performance and set sensible credit limits. For higher risk, use deposits or staged billing.
• Polite chasers: Schedule reminders: Before due date: Friendly nudge with the invoice attached. On due date: Confirmation request. 7 days over: Firm reminder referencing late interest. 14 days over: Phone call with a payment plan option.
• Escalation path: At 30 days over, place accounts on stop unless directors approve exceptions. At 45–60 days, send a letter before action.
• Record-keeping: Save call notes and email threads. Accurate logs support interest claims and, if needed, legal action.

We also suggest a weekly “aged debt huddle”. Ten minutes is enough to agree ownership of the next call, update notes, and confirm any holds on work.

Incentivise prompt payment without harming relationships

Carrots and sticks both work – use them carefully.

• Early-payment incentives:
  • Prompt payment discount: Small discounts – often 1% – can speed up receipts without hurting margin.
  • Staged invoices: Bill 40/40/20 across a project to balance risk and keep cash moving.
• Firm but fair deterrents:
  • Late interest and compensation: Refer to your terms and statutory rights when accounts go overdue.
  • Stop-supply policy: Make it clear that new work pauses when older invoices are unpaid.

Real-world example: a services firm moved from single “month-end” billing to weekly milestone invoices and a modest prompt payment discount. Average debtor days fell from 56 to 34 within two months – proof that managing late payments can deliver quick wins when incentives are aligned.

Use tools that forecast and reduce risk

Technology helps prevent drift and removes manual work.

• Automated reminders: Configure sequences that send statements and chasers from day −3 to day +14, then flag accounts for human escalation.
• Customer portals: Give clients one place to download invoices, update billing info, and pay online.
• Risk signals: Monitor promise-to-pay dates, part-payments, and failed direct debits; these often pre-date genuine distress.
• Cashflow forecasting: Roll daily bank feeds into a 13-week forecast. Overlay debtor scenarios – best case: on-time; likely: +7 days; stress: +30 days – so you can plan VAT, PAYE, and supplier payments with more confidence.

If you’d like help choosing or setting up these tools, explore our services – we can implement and train your team quickly.

When to escalate: Legal options and tax reliefs

Sometimes a firm stance is necessary. Before you escalate, give a clear final deadline and confirm the consequences in writing.

• Letter before action: A formal notice often concentrates minds; it’s typically required before issuing a claim.
• Statutory interest and compensation: You may claim 8% plus base rate interest, a fixed-sum per invoice, and reasonable recovery costs where your contract doesn’t already provide a substantial remedy.
• Mediation or small claims: Proportionate for lower values, especially where the relationship has already broken down.
• Bad debt relief for VAT: If you have paid output VAT to HMRC but have not been paid by your customer, you can claim VAT bad debt relief once conditions are met – broadly, when the debt is at least 6 months overdue from the later of due date or supply date and properly written off in your records (HMRC VAT Notice 700/18). Keep evidence of the original VAT period, amounts written off, and any part-payments.

These steps won’t be right for every client – but they are essential parts of managing late payments fairly across your ledger.

KPIs that keep everyone honest

Focus on a small set of measures and review them monthly.

• Debtor days (DSO): Average time to collect; set a target by customer segment.
• % current vs overdue: Aim for at least 80% current on rolling basis.
• Collection success rate: Invoices collected within 30 days of due date; a simple, motivating metric for the team.
• Forecast accuracy: Cashflow forecast vs actual receipts – tighten assumptions where gaps persist.

As the ONS notes, most businesses are trading fully or partially. In that context, tightening managing late payments KPIs is a practical way to fund growth while competitors tread water.

Late payment risk is part of doing business – but it should not define it. Tight terms, disciplined credit control, smart incentives, and sensible escalation create a clear framework for managing late payments that protects cashflow and relationships. Use statutory tools where appropriate – 8% plus base rate interest and fixed compensation can offset admin time – and remember to claim VAT bad debt relief when a debt genuinely turns bad. The government’s own figures show how costly delays can be, both for individual firms and the wider economy.

If you’d like tailored help managing late payments, we can review your debtor book, build a 13-week cashflow, and set up a practical collections routine your team can run every week. Contact us – we’ll map quick wins and a clear plan to bring debtor days down and stabilise cashflow.