How to deal with late payments

In our last blog – Tips on managing cash flow – we explained the importance of keeping track of cash flow over the coming months. For many businesses, the most common problem is late payments from customers.

The smaller your business, the more difficult it can be when chasing debt as you don't want to affect your relationship with your customers.

However, there are some strategies that you can put into place to help you chase payments and retain a good relationship with customers.

Dealing with large companies

Some corporate companies and public sector organisations such as the NHS and Councils have set payment terms which are often 60 to 90 days from receiving the invoice. They are usually not very flexible with their payment terms. However, in the current climate, it is worth contacting them to ask if there is the chance of reducing the payment terms or the possibility of invoicing partway through a project as you get work done, so you are not waiting until the very end.

It's also essential with these organisations to get the PO number as early as possible so that this doesn't cause a further delay when you are sending in invoices.

Explain payment terms at the start of a contract

When you first start working with customers, it's prudent to agree on payment terms with them so that they understand when they need to pay their bills. By putting this in writing and going through this from the outset helps both parties to manage their finances.

In some cases, it may be better to invoice at the start of the project or agree on regular intervals when invoices will be issued. Explaining if there are any penalties imposed for late payments at the very beginning of a contract is a lot easier than discussing this when you are struggling to get invoices paid.

Offer incentives for early payments

Sometimes offering an incentive for customers to pay upfront or to pay early works well. It is important not to reduce your profit margins too much but sometimes offering a small discount can make a big difference. For example, if customers would generally pay monthly, you can offer a discount if they pay for the products/services as a one-off annual payment.

Consider payment options

If your products/services are of high value and you want to reduce the chances of late payments, it is worth introducing different payment options. Allowing them to pay cash, via BACs, PayPal, Go Cardless or credit card can make it easier for them.

Sometimes customers pay late because they are not very organised with managing their finances, in these cases, they may be more than happy to set up a standing order or direct debit payment as it is one less thing for them to do each month.

Outsource to a bookkeeper

Finally, if you find that you often have to call customers to chase invoices, then it may be worth hiring a bookkeeper. They can keep track of your income and expenditures, and if customers are late in paying you, they can send out timely reminders. Plus, if they call and chase for an invoice, it helps you to step away from the situation, and it becomes a business transaction rather than a personal one.

We hope you found this article useful. If you would like any further advice on managing late payments or if you are interested in our bookkeeping services, then please do get in touch.

You can call 01623 490 120 or email This email address is being protected from spambots. You need JavaScript enabled to view it..