How to deal with late payment of customer invoices

During the January 2022 Facebook Live, I talked about how to deal with late payment of customer invoices.

All businesses, unless they are taking payment for a product/service right then and there, are likely to have to deal with customers paying their invoices late at some point.  When customer invoices are paid late, this can have an impact on your cash flow, and impact on your ability to pay your invoices.  There are things you can do to help mitigate this though.

How can I prevent invoices from being paid late?

These tips aren’t a guarantee that invoices you send to your customers won’t be paid late, but they can help to ensure that it doesn’t occur as frequently.

The first thing is to work out what your payment terms will be, how you will accept payment, whether you will be applying any interest to late payments and work out your procedures for chasing for late payments.  Once you have that figured out, make sure this information is clear and concise and is stated in your terms and conditions as well as in any contracts you issue.  You will also want to include your payment terms on any invoices.   The key is to make sure that this information is communicated to all your customers before they enter into a contract with you so that they know ahead of time what your payment terms are, how they can pay you, and what happens if the payment is late.

The next thing is that once you have your policies all figured out and ensure that they are communicated effectively to your customers, is to make sure you stick to those policies.  Set up a regular reminder to check that all invoices are being paid on time, and if any are overdue, act quickly to contact the customer about the overdue invoice.  Some invoicing software will allow you to set up automatic reminders for invoices once they go past their due date while other accounting software is a more manual task – but you will still be able to send reminders to your customers about the overdue amounts.

Look at whether you could start using Direct Debits to collect regular monthly/weekly amounts from your customers if you are invoicing them on a regular basis.  You could look at something like GoCardless ( to collect the regular payments from your customers.  You want to make it as easy as possible for customers to pay your invoices.  Some accounting software will allow you to take payment directly from customers when they receive your invoice via e-mail – they may be partnered with different payment providers like GoCardless, PayPal, Stripe, or there might be 3rd party payment providers like Crezco ( that will integrate with your accounts software to put a payment link on the invoice that customers can click on and initiate payment that way.  You will need to look at the various payment providers that are out there as there may be additional charges you will need to pay to use them, and you want to find the one that works best for you and your business.

Ensure that you are sending out your invoices regularly, promptly, and that they are correct.  Part of doing this will be making sure that you have the correct contact details for your customer so that the invoices are going to the right e-mail or address.  By sticking to a regular routine for issuing your invoices, customers will know when to expect the invoice.  Not only will it help you to have a better handle on your cash flow, but it will also help your customers to be able to plan when they need to make payments.

You also want to ensure that you are sending out late payment reminders promptly and in accordance with the policies you will have set out to the customer.  There might be a simple explanation for why the payment is late – sometimes all it takes is a single professional and polite reminder e-mail for the customer to realise they missed paying your invoice.

Can I charge interest on late payments?

If you are invoicing another business or the public sector, you are legally entitled to charge statutory interest, which is 8% plus the Bank of England Base Rate, on all late payments.  You may decide to charge a much lower interest rate though and will need to charge the interest rate that is in your contracts – but as long as you communicate this effectively to all of your customers before you invoice them – you can charge them interest.  You can find the Bank of England Base Rate here. You are also entitled to claim back compensation for any debt recovery costs if you go down that route.  The government has set out the rates you can claim back on their website.

The rules and regulations about what you are entitled to charge on late payments and what you can claim back are all outlined in the Late Payment Legislation.

If you do charge a customer interest on any late payments, you will need to issue them with a new invoice for the late payment charges.  If you are a VAT registered business, there is no VAT charged on the interest.

It is important to note that you are not able to charge interest on late payments until the invoices are late according to your payment terms, or 30 days have passed since the customer received the invoice or you have delivered the goods/service.

What do I do if the customer doesn’t pay on time?

Your first step will be to send the initial payment reminder and see if that gives your customer a gentle nudge to pay the invoice.   If that doesn’t work, you need to follow the procedures that you set out in your terms and conditions – so this might be that you will issue 3 statement reminders and then start charging them interest.

If despite your best efforts and following your procedures, the invoice remains unpaid, you could look at going to a Debt Recovery Service, getting a solicitor’s letter, or even using the Money Online Service. ( You will need a government gateway account to use the Money Online Service.  Once you’ve filled out the forms, the courts will send a letter to the customer asking for payment, and if payment isn’t made within the time frame stated, a CCJ will be issued.  Just bear in mind that going down the formal route, is likely to sever any relationship you have with your customer.

Every situation is going to be different, and you will need to deal with each one on a case-by-case basis.  Proper communication with the client is the key.  It may be that the customer has had issues getting paid by customers themselves, or they have lost a big contract – contact the client, preferably by phone, and talk to them.  You might be able to sort a payment plan with them or resolve the situation without any bad feeling.  If that doesn’t work, follow your procedures, and then take it further if necessary.

If you would like further information on how to handle customers paying late invoices, feel free to e-mail me.

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