Do any of your clients ever pay your invoices late? This happens to a lot of small businesses from time to time and for some it can be a regular problem. In this blog we’re talking about the main causes of late payments, why they can be so disruptive, and how to prevent them from happening. 

The top reasons for late payments 

Over the years we’ve come across a wide variety of reasons given to our clients by their own customers. Whilst a few of them sound reasonable enough, others could clearly have been rectified before the payment’s due date passed. Here are some of the main offenders: 
“Our finance person is on holiday.” 
“I thought we’d already paid you.” 
“We’re in the process of switching to a new bank.” 
“We didn’t receive an invoice.” 
“You billed us for the wrong amount.” 
“Not all of the services/products have been delivered”. 
“Our business has gone bankrupt.” 
“We’re experiencing cash flow problems.” 
“Sorry, I forgot.” 
As you can see, some seem more legitimate than others and it’s tempting to let the client off the hook, especially if they’re either brand new or have been with you for a long time. Equally, many business owners simply dislike confrontation or feel like they’re pestering the client when they chase up an overdue payment. However, the crucial point to bear in mind here is that you delivered products or services as agreed, so it’s the recipient’s responsibility to pay for them by the date shown on the invoice. 

Don’t take late payments personally 

A quick point that we’d like to mention is that you should never take a late payment as a personal attack or insult. If the client is late paying you and even if it happens on a regular basis, chances are they do this with a lot of other suppliers. 
We’ve spoken to countless business owners whose mental and even physical health has suffered due to the stress and pressure caused by late payments. Though easier said than done, make sure to remain strong and remember that there’s always a way to rectify the situation – read on to discover our top tips on how to get clients to pay their invoices faster. 

Create a clear contract (and store it safely) 

Our first tip for preventing late payments is to change the way you take on new work by putting contracts in place. Many small business owners don’t use contracts and instead have an unofficial spoken or written agreement that a certain number of products or services will be supplied by a particular date, which are then paid for by the client by another specific date. This is where it can get risky, as the client may pay a few days or weeks later than agreed, or possibly never at all. 
By creating a strong contract with clear payment terms which is read and signed by both parties, the likelihood of late payments is reduced and you have an official document to refer to if any problems arise. Remember that, unlike a contract, an invoice on its own is not a legally binding document. (Need help creating a contract template? Get in touch with our business advisors today.) 

Request a payment in advance 

An increasingly popular option is to request an upfront payment or deposit before the project begins, with the rest paid upon completion. This may be harder to establish but it’s definitely worth considering if you often have trouble with late payments. The benefit here is that you definitely receive 50% of the money owed to you and it will enter your bank account immediately, which can greatly improve cash flow. 
This approach is especially suitable if you have to pay for anything on behalf of the client, such as materials, labour, transportation or advertising, as receiving half of the total figure when the project commences will ensure that you can easily cover the costs and won’t be out of pocket. 

Make paying invoices a smooth process 

Another reason that some businesses use for paying late is that the payment process is too complex. This is hardly an excuse, yet it’s definitely a factor that’s worth addressing even if you haven’t had anyone say it to you yet. 
Making things fast and easy for clients is a form of best practice, as it facilitates a smoother customer journey, improves your reputation as being someone who’s good to work with, and can play a large role in preventing late payments. A few examples of payment options are: 
BACS or bank transfer: A direct payment from bank account to bank account. 
Direct debit or standing order: Payments are set up to go out on a monthly basis, but this only works if all of your invoices are for the same amount each month. 
Automatic bill payment: Cloud accounting software such as QuickBooks allows recurring payments to be set up – again, the value of your monthly invoices needs to be consistent. 
Online credit or debit card payment: Most cloud accounting software allows you to add a “pay now” link to the invoice, which the client can click to make a payment very quickly online. 
Cheque: Not ideal, although most online banking websites and apps allow you to pay cheques in digitally instead of having to visit your local branch. Cheques are in the middle of a lengthy process of being phased out in the UK, although they should still be around for a while longer. 
Mobile payments: A very convenient method of payment, as the client can pay your bill no matter where they are using secure apps such as PayPal, although you may have to pay a small fee. 
Cash: Whilst cash payments are still an option, we very much recommend that you avoid them. Aside from the risk of the money being lost or stolen, it also makes accounting and tax management a trickier process. 

Listen to the needs of the client 

Getting paid on time is a two-way process, as your business needs to provide a great service and deliver the agreed quality of products/services on time in order to have fulfilled its side of the transaction. It’s a good idea to have a friendly chat with your clients to see if your usual payment terms suit them, as some SMEs prefer to pay on certain days of the month or require longer payment terms – for instance, some larger companies request that invoices allow 60 days for payment to be made rather than 30 days. 
By having these conversations and responding to the needs of each individual client, you can strengthen relationships and come to mutually beneficial agreements. However, never feel pressured into loosening your payment terms to the extent that your cash flow will be disrupted, as everything should work well for both parties. 

Invoice quickly and consistently 

Many business owners are paid late simply because they invoiced too late. You should always invoice the client as soon as the work is complete, which ideally will be at the end of the month rather than at the beginning of the next month. This helps clients to include your invoice in their next payment run instead of allocating it to the next one, which will usually be an entire month further down the line. 
Alternatively, it might be that the client requires you to send your invoices by a particular day of the month, such as the 1st or 15th or perhaps the second Wednesday or third Monday. Whatever the case may be, make sure to stick to this routine and your invoices are more likely to be paid on time, every time. 

Make your invoices foolproof 

Have you ever received an invoice from someone and it’s taken longer than it should to locate the key information? Some invoices are very badly designed and may even miss out core details. To remove the risk of your invoices being confusing or hard to read, check out our guide to what to include on your invoices

Keep track of who pays their invoices late 

If you have a lot of clients, and also if you have clients who only use your services every now and then, it can be very easy to lose track of who pays their invoices late. Obviously if a particular client pays late on a regular basis you’ll remember it, but if there’s one who has paid late three or four times over the course of a year or two, you may not realise that a pattern is emerging. 
If you make a note of each late payment, you can determine whether there may be a risk of cash flow disruption. Whether or not you continue to deliver products and services to these occasional late payers is entirely up to you, but at the very least you’ll have clearer insight into their behaviours and can plan accordingly. 

Always keep your cool 

Unfortunately, the reasons why you may become stressed, angry or upset with late payments are too numerous to count. Still, here are some of the most common: 
The client is slow to reply to your emails or doesn’t answer your calls. 
They say they’ll pay today, tomorrow or on a certain day but then don’t. 
They sound uninterested and act like the late payment is no big deal. 
They use the excuse of poor cash flow, which doesn’t excuse the lack of communication, warning and apology before the payment became overdue. 
They finally pay the invoice but it’s the wrong amount, creating more admin for you. 
They continue to pay their invoices late, which makes you feel like they don’t respect you. 
It’s taken a lot of time to chase payments, which could have been used more productively or spent with friends and family. 
All of the above scenarios are very frustrating and could potentially result in you losing your composure. However, it’s critical that you remain professional at all times, as it’s possible to be simultaneously stern and polite. Meanwhile, taking a laissez-faire attitude may cause the client to think that the late payment is trivial and leave it even longer. 

Send reminders on a regular basis 

If an invoice due date has come and gone, you need to contact the client to let them know that it needs paying. Make sure to remind them of the invoice number and the amount owed, plus it can speed things up if you attach the actual invoice again. 
If the client doesn’t pay the invoice within a set timeframe of your choosing (or a new date that you agree with them), it’s unfortunately up to you or your accountant to keep reminding them. Simply ticking it off your list and assuming that the client will pay could result in the payment being delayed further by days, weeks or even months. 

Penalise late payments 

Many business owners add a late payment fee to their invoices, which can be any amount but is often around between 2% of the total amount if not paid within 14 days or a set fee for each day that passes. This can motivate clients to pay faster and even encourage them to always pay on time in the future. Bear in mind that late payment fees can’t be added to your payment terms retrospectively, as they need to be clearly stated on the original invoice and/or contract. 

Take on a credit control service 

Unless you’re a big fan of drama and negative cash flow, the idea of chasing late payments will be very unappealing. That’s why we provide an effective and affordable credit control service that takes a huge weight off your shoulders and enables your business to recover late, missed or inaccurate payments. We do all of the debt chasing on your behalf, ensuring to always act in an uncompromising yet professional manner. 
We can also take this service to the next level by including credit management, which assesses the risk connected to potential clients before you begin a working relationship with them. If there are any red flags, we’ll let you know about them and recommend how much credit to extend to them, if any. 

We’ll help you to prevent late payments 

If you’d like to have a chat about how our accountants, tax advisors and credit control experts can help you to prevent late payments and maximise cash flow, call our Yorkshire office on 01482 235575, our London office on 0207 885 0605, or fill in the contact form below. 
Share this post:
Our site uses cookies. For more information, see our cookie policy. Accept cookies and close
Reject cookies Manage settings