Small business: how to chase late-paying customers

Many small business have trouble getting their customers to pay up on time. Here's what you can do about it.

Small and medium-sized enterprises (SMEs) are chasing £50bn in late payments. Businesses typically waste 90 minutes every day trying to get overdue invoices paid. The average amount owed per invoice is £8,500. 

Despite a series of government initiatives to tackle the problem, SMEs continue to complain that customers – particularly larger companies – do not pay their bills on time. More than 1,000 firms are going bust every year with cash-flow problems caused by bills not being settled on schedule.

Fight on two fronts 

If your firm has a late payments problem, fight on two fronts: focus on persuading customers who are already late to pay up and avoid future problems.

Don’t put off chasing late payments. Start doing so the day after a payment is due because the longer you leave it, the further down the queue your invoice may drop. And don’t let the problem escalate: refuse to continue supplying goods or services while payments are outstanding. In addition, make it clear that you will exercise your statutory right to claim interest on late payments at 8% over the Bank of England base rate as well as seek compensation for debt-recovery costs. Don’t be afraid to seek help. The Small Business Commissioner offers free support to businesses with fewer than 50 employees when they are chasing payments from larger organisations, which it defines as those with more than 50 employees. This can be a useful mediation service, particularly for businesses worried about upsetting clients. You can also appoint a debt-recovery agency to act for you. If you incur costs doing so, you’re entitled to pass these on to your debtor.

As for preventing customers’ accounts from reaching this point, there are several steps you can take. Get to know new customers before taking their business. Running credit checks online on new customers could save you time and money.

When you do start working for a new client, be clear about your payment terms. Are they on every invoice you send and are they consistent? Have you explained them to new customers? Give customers a choice of how to pay, but avoid cheques since these add delay to the payments process. You may also choose to be flexible in other ways, offering discounts for prompt payment, for example, or offering to split large payments into smaller instalments. But agree any such deals upfront.

Finally, if late payments are causing your business significant cash-flow problems, talk to your bank at an early stage about any help it can offer. Invoice finance can also be a useful way to unlock the value of unpaid invoices and improve your business’s cash flow.

Recommended

The best business bank accounts – November 2022
Small business

The best business bank accounts – November 2022

A crucial element of running any business is ensuring you select the right bank account. We’ve rounded up the best business bank accounts to help you …
15 Nov 2022
Hunt ditches changes to IR35 tax rule
Tax

Hunt ditches changes to IR35 tax rule

The new chancellor has scrapped plans to reform the IR35 tax rule for contractors and freelancers.
7 Oct 2022
Six mistakes to avoid when starting a business
Small business

Six mistakes to avoid when starting a business

Around 60% of new businesses fail within three years, says David Prosser. Here, he outlines six key pitfalls to avoid when starting a business.
21 Sep 2022
Energy bill help for small businesses
Small business

Energy bill help for small businesses

It's not just households struggling with soaring energy bills. Small business are too. But, says David Prosser, there are several ways to help mitigat…
7 Sep 2022

Most Popular

Best debit and credit cards to use while travelling abroad
Personal finance

Best debit and credit cards to use while travelling abroad

If you’re going on holiday or travel abroad regularly, it’s worth knowing what the best card is to avoid hefty fees. We weigh up the charges and any p…
6 Jun 2023
Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
A discounted REIT to buy now
Investments

A discounted REIT to buy now

This real estate investment trust is carving out a niche for itself by recycling old offices. Investors should take advantage of the discount and buy …
6 Jun 2023