If you run a small business, you’ll be only too aware that late payments can quickly turn from an irritation into a full-blown cash flow problem. The government’s recent response to the late payment consultation that ran last year suggests that there may be additional legislation coming to help deal with the problem, but in the meantime, here are three practical steps you can take that can make a real difference.

1. Make it easy and obvious for customers to pay

Late payments from customers are not necessarily deliberate. Sometimes, they’re caused by confusion or missing information.

With this in mind, a few small tweaks can cut down on a surprising number of overdue invoices. For example:

• Put your bank details on every invoice and make them large enough to spot at a glance.
• Add a clear ‘Payment due by [date]’ line in the top section of the invoice.
• Offer more than one payment method wherever possible and make those obvious.
• Send the invoice as soon as the work is completed. When a job has gone well and the customer is pleased, payment may be more rapid.

2. Set expectations early and repeat them often 

Embed payment terms into your communications with the customer throughout the work you are doing for them. For instance:

• Before you start work, confirm the price and payment terms in writing.
• Include your payment terms in your standard terms and conditions and ensure you receive a signed copy for your records before work starts wherever possible.
• Reconfirm those terms on the quote, on the invoice, and in the first reminder.

If you need deposits or staged payments, say so upfront. Many customers will accept this when the requirement is framed as a normal part of your process. For example, you might say: ‘We take a 25% deposit to secure the work, with the balance due within 14 days of invoice.’ 

In our experience, many businesses hold back from making this change through their own fears, but when they finally trial the process, they’re surprised how easy it is to implement, and how little resistance they face.

3. Be polite but firm when chasing, and follow a set routine

Chasing overdue invoices feels awkward, so it can be tempting to leave it in the hope that the customer will pay before you have to say anything. However, that can mean leaving it too long, and cash flow becomes a serious issue.

A routine takes the emotion out of the process and keeps things consistent. For instance, you might try:

• Day 1 after the due date has passed – Send a friendly reminder to check that the invoice has not been missed or lost. Confirm in writing.
• Day 7 – Be firmer, include the invoice again and ask for a specific payment date. Confirm in writing.
• Day 14 – Let the customer know that late payment interest may be charged under the Late Payment of Commercial Debts Act. You do not need to actually apply the interest unless it is appropriate. Confirm in writing.

Some customers will still be slow, whatever you do, but many will respond well when you keep things polite, clear and businesslike. 

Your accounting software can usually be set up to send automatic reminders, and there are simple add-on Apps that can add an extra level of automatic chasing. By the time a debtor falls out of automatic chasing and on to your radar, they’ve then received all of the ‘standard’ reminders in your process, and are more likely to need a personalised programme of contact to ensure payment is received.  

In conclusion…

In practice, managing late payments is mostly about consistency and having a simple system that you stick to for every occurrence.

If you’re struggling to set up and maintain your process to manage late payments, please get in touch. We’re here to help and a simple, consistent late payment process can be transformative.