• Finance
  • June 17, 2020

How do you deal with late payments?

Recently, Xero carried out a study of small and medium-sized enterprises (SMEs), concluding that SME owners are concerned about their future. In particular, 54% of business owners stated that a major reason for the uncertainty over their future was receiving payments late from customers.

Our strategic partner Tide has conducted a survey that reveals that SMEs across the country are chasing more than £50bn worth of late payments.
'Our survey of 1000 CEOs, founders, directors and staff at SMEs conducted in late 2020 revealed that the average SME is chasing 5 outstanding invoices at any one time with an average of £8,500 owed. When you consider that there are 5.9 million SMEs in the UK, this equates to a staggering £5.2bn. Late payments can cripple small businesses, which is why negotiating the right payment terms with your customers can help to maintain a positive cash flow.' Oliver Prill, Tide CEO
So how do you, as a small business owner, ensure that you reduce this risk in your own business? Read this article to find out.

Consider altering your payment terms

Have you considered requiring payment upfront from your customers? Although some businesses may prefer not to do business this way, by requiring payment upfront, businesses significantly reduce the amount of admin involved in ensuring that payments have been made on time, and chasing those which have not. Granted, this approach may not be suitable for businesses where the scope of work isn’t wholly clear at the start of the working relationship. However, this is the most significant step you can take to reducing non-payment by customers – eradicating the possibility of it, by changing your payment processes.

Communicating with customers

Although your payment terms may be included within your terms and conditions, there is often no substitute for ensuring that you are clear in your communications with your customers. 
Be extremely clear at the start of the working relationship as to how billing works, and follow this up with an email. It is always more effective to set expectations at the start. In addition, if it becomes clear that your scope of work is likely to go over an estimated price (or a price you know the customer is expecting), be sure to communicate this to your customer as soon as you become aware of this. Being upfront and open with your customers will result in a more open dialogue, which means the customer is less likely to default on paying your invoice.

Be very clear in your terms and conditions

Your terms and conditions set the rules of your relationship with your customer. If your terms and conditions are not clear as to how invoicing works (in terms of the method of invoicing and when payment is due), the customer has an argument for not making payment. It is a worthwhile investment to have your terms and conditions reviewed by a solicitor to ensure that they convey the payment terms you want to enforce. Too often, terms and conditions do not provide for a business being able to charge interest when payment is not made on time. This restricts your options when dealing with a non-paying customer. Be sure to include a clause in your terms and conditions that allows you to charge interest, at a market standard rate, in the event that your customer fails to make timely payment.
It is also highly advisable to include your key terms, including payment terms, on your invoice, and to draw your customer’s attention to the payment terms when sending the invoice to them.

>> How fit is your business? Start today our Late Payments Health Check

Implement a follow-up system

From a practical perspective, it is crucial that you have in place a system for monitoring payment of invoices. When an invoice becomes overdue, a member of staff should have responsibility for following up with this customer. It is also important that your business has a defined process for dealing with late payments. An example of such an approach would be:
  • A gentle reminder email to pay as soon as possible
  • A strongly worded email requiring payment immediately
  • An email stating that you will take further action if payment is not made immediately
Following a third reminder email, you may then wish to escalate the situation, by instructing a solicitor to take matters further. Having a defined non-payment procedure in place will allow you and your team to have greater certainty over how you approach these matters.


The most important thing to remember is that, while these methods will not eradicate this completely, communication, clarity and clear procedures will go some way to reducing the issue of non-paying customers in your business.

The author of this blog post is Barbara Jamieson. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts.

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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