What to do when invoice payments are overdue

Common reasons for late payment

Understanding why payments are late can help you to better decide what action to take. Where reasons are legitimate and forgivable, being too forceful could irreparably damage your relationship with your customer.

They may be waiting for payment themselves. That doesn’t mean you let the matter drag on. Rather, you give them a few extra days to pay. And if your cash flow is tight, you could ask for a sizeable part-payment, and the balance when they’re paid.

Sometimes invoices can genuinely get mislaid. Once again, your approach shouldn’t be disproportionate. If a customer says they’ve lost your invoice, provide a replacement straight away and get them to agree to pay as soon as possible (ideally, immediately).

Are they using delaying tactics?

Post due date, a customer shouldn’t suddenly raise an issue about your invoice or product/service quality. If they do, it could be a delaying tactic. Investigate their claims and resolve them if you’re at fault. If not, explain why and firmly request immediate payment.

If a customer is obviously using delaying tactics (e.g “You’ve missed the payment run”, “Our payments person is on holiday”, etc), politely remind them of your credit terms and ask for a payment date. Any extensions should be an exception, not the norm.

Habitual late-payers may create cash flow pressures, but their custom can be worth retaining. If so, invoice finance may provide a solution. It can enable you to quickly raise cash against your unpaid invoices. Typically, you receive 90% of their value from a lender, then the balance, minus the lender’s fee, on payment.

Some caution is advised. A late-paying customer could themselves have serious cash-flow issues, and constant broken promises and ignoring your calls or emails aren’t good signs.

Chasing unpaid invoices

Ideally, your credit-control/invoicing system should automatically alert you, a few days before an invoice is due for payment. Emailing a polite reminder to the customer can ensure prompt payment. If you don’t have such a system, at the beginning of each week, list invoices that are due for payment. Then you can send reminders and chase payment.

If you haven’t received payment the day after the due date, email the customer to request payment (although some payments can take a few days to appear in your business bank account). Attach a copy of the invoice, so the customer has all of the details they need.

Sending a chasing letter by post will simply mean having to wait longer for payment. Don’t let days or much less weeks go by without chasing unpaid invoices, even if you dislike doing it or worry about the customer’s reaction. Good customers won’t mind.

Should I chase by email or phone?

Although emails are easier to ignore than calls, they can trigger immediate payment. Send the email to the person responsible for payments. If a customer has an accounts person or dedicated accounts email address, get it when you first start supplying them.

Some recommend always chasing late payments by phone. For larger customers with accounts departments, that’s fine, or smaller customers that haven’t responded to your emails. However, some may not appreciate a phone call the day after due payment date, especially if they normally pay on time. A call may seem slightly over the top – especially if your tone is too forceful.

Send no more than three emails when chasing a payment. If there’s no response, over, say, a 10-day period, a phone call is essential. Remain friendly and professional, but firm. You have every right to request money you’re owed.

Click on the button below to download example text for a series of three chaser emails. 

Can I add interest if payment is overdue?

You may come across customers who deliberately string their payments out as much as they can. The softer you are, the more likely they are to continue and maybe even try to take even longer in future.

Be persistent. Remind habitual late-payers of your terms and the effect their late payment has on your cash flow. Some customers really are more trouble than they’re worth. It can be wiser to stop supply and go after new customers. Alternatively, you could continue to supply and use invoice finance to mitigate the cash flow impact.

You have a statutory right to add interest to unpaid invoices (8% over the Bank of England base rate per day for B2B transactions) and claim debt-recovery costs if things get really bad. If you apply interest, send a new invoice, detailing interest charges. Telling a customer that you plan to add interest can prompt payment – although it could end your relationship.

Should I seek the help of a debt collector?

If all your efforts fail, your next move should be to inform the customer that no more products or services will be supplied until their bill is settled.

Then, if payment is long overdue and it becomes a debt, to save time, you could contact a reputable debt-recovery agency (Financial Services Authority-registered is recommended). Ask for references. Some only charge if they recover debts. Find out exactly what fees or commissions are payable and carefully consider these before engagement.

Taking legal action over late payment

Before you personally take legal action against a customer for non-payment, first consider whether the debt is worth pursuing in court. Before contacting a solicitor, send the customer a “Letter Before Action” telling them you intend to take them to court if they don’t pay within a specified period (eg seven days). This can be enough to force payment. Mediation may also provide a cheaper solution if there is any dispute. Litigation should always be a last resort.

For debts worth more than £750, you may be able to issue a statutory demand for payment. As explained on government website gov.uk:

“If they ignore the statutory demand or can’t repay the money, you can apply to a court to:

• make someone bankrupt – if you’re owed £5,000 or more by an individual, including a sole trader or a member of a partnership
• get a company wound up (liquidated) – if you and any other creditors are owed £750 or more.”

If the customer’s business has failed, you’re unlikely to get your money, because HMRC must be paid first for any tax owed, then employees must receive any unpaid wages. In many cases, suppliers get nothing. Seek tailored legal advice before proceeding with legal action, because it can end up costing you a lot of time and money.