Guide on How to Chase Late Payments From Clients

By Richard Mitchell
Content writer
Published: 8 July 20201 minute read
Guide on How to Chase Late Payments From Clients

Table of Contents

Your small business’ cash flow is, not surprisingly, dependent on cash coming in.

Retailers can expect to have cash that keeps pace with sales – because the money goes into the till immediately – even if it does so in electronic form. But businesses with clients or customers who pay after the receipt of an invoice are a different matter.

They may tend to pay when it is convenient for them, and late-paying clients can be a burden for a small business owner. Trying to get clients to pay can become a real-time drain. In fact, a 2017 study found that small business owners spend an average of 1.3 days a month chasing down money that’s owed to them by their customers

It not only drains the time that you need to run your business and generate profits – it drains your cashflow too.

In the worst cases, your business can become unable to pay its own bills, because customers are using the money they owe you – your money – to pay their own.

Obviously, you will need to provide some form of payment terms to your clients. Providing free credit is actually what you are doing, and it has become a fact of business life, established over hundreds of years. But it is costing you money even when things go as they should – and when it doesn’t, and customers take more than the 30 days that are standard in most industry sectors, it starts costing you even more.

Remember, whatever business you are in, you are not in the business of providing interest-free loans, which is what you are doing with late payments. 60- or 90-day payment terms are common, but you don’t have to work with them just because others do. Determine what deadline you want based on what your cash flow needs are.

Does a 60-day deadline risk draining your own cashflow, and throwing off your own monthly payments for rent, stock, or wages? Then request a 30-day deadline - or even 14 days if that works best for you.

As a small business, late payers are something that you simply cannot afford. The problems come when payments are past your 30-day payment term and you still haven’t received the cash you need. Your client is wasting your time by making you chase a payment that should be sat in your account, and costing you money. You are probably paying a lender to borrow funding that, by rights, you should already be paid.

So, how do you chase unpaid invoices?

Remember it is your money

Chasing people to pay what they owe is difficult for most of us. It goes against British reserve or the habits of a lifetime – or it may simply be that we think if we are too pushy we will not get any more orders from the people we chase.  

Whatever the reason, many small business owners can struggle with late-paying clients. But remember, it is your money you are asking for, not a favour. Getting paid is the basis of business, and if you need to chase for payment, that is part of your business too - and if the late-paying clients don’t like it, all they need to do is pay what they owe.

You may have to develop a slightly thicker skin – and use some of our helpful hints to ensure that getting paid on time is less of a problem.

1. Establish Clear Payment Deadlines

The first hint is to make payment terms clear at the start of the relationship.

Establish immovable payment deadlines in a contract that clients sign before you start work.

Always pick a timeline that suits your business needs. Then make it part of your contract, and make sure your client has put his name to it. Explain that it is the way to do business, that your accountant insists on it, whatever you like – but ensure that they sign.

People are less likely to take liberties with your money if they recall they are working under a contract, and it will make things very much simpler if you need to escalate things.

What if the client refuses?

If the client has already agreed to buy from you, it is harder for them to disagree with a reasonable payment period. If they do, it could be a red flag. When it is a new client, always do your due diligence. Check that they are legitimate, and not about to fail. If they have only come to you because they cannot get products or services elsewhere, because they have not paid other suppliers, they are planning on doing the same to you, and they are not worth doing business with.

If you feel the client is legitimate but really does have longer payment needs, feel free to negotiate. You could discuss the costs – perhaps your low price includes a prompt payment discount that they would be missing out on. Just make sure whatever compromise you reach still suits you, and is set in stone with an updated contract.

2. Don't be afraid to chase

In the early days of running your business, it can feel difficult - even rude - to contact a client to ask for payment. It’s not – this is business after all. You’ve done the work or supplied the goods. The client is happy, or he or she would have let you know about it and you are entitled to be paid on time. By not sticking to the payment terms you both agreed, it’s the client who is being rude.

Call, be polite, but be firm. It is difficult when you start out, but as you become more experienced in business, you come to understand that chasing invoices is all part of the course and that clients who seem to be offended by being reminded of their obligations are simply trying to take advantage of you.

2. Charge Interest on late payments

Government legislation has been introduced that allows you, as a small business, to charge up to 8% interest plus the Bank of England base rate on late payments. You can also pass any debt recovery costs onto the client.

If you haven’t already agreed exactly when the money is due to be paid, the law assumes the payment becomes late 30 days after either:

  • The customer receives the invoice; or
  • The goods or services are delivered.

However, you don’t have to charge the full 8% and you can set your terms as long as they’re within the government’s guidelines. Some businesses choose to charge 2% interest on payments made after 30 days, rising to 4% after 60 days.

However, before you start adding to the invoice you should warn your clients that interest will be charged if your invoices are not paid on time. It is often enough to show that you know the law and are not a soft touch.

Is your business suffering from late-paying clients? Find out how an Invoice Finance solution can free up your cashflow and even include bad debt protection

3. Have a measured response

When you don’t receive payment on time, the temptation is to think the worst and assume the client is trying to get away without paying at all.

However, a legitimate business will rarely try to do this. In most instances, the client will have simply forgotten to pay or have a prescheduled date when their payments are made – although they may be trying to improve their own cash flow at the expense of yours.

Stay calm. If you get angry every time you chase a payment you may very quickly burn through clients you don’t want to lose. You need to maintain a cordial relationship with even late-paying clients. Don’t send angry messages.

You need a carefully-measured response which will allow you to escalate the pressure.

First, wait a couple of days - and no more - after the payment was due before sending a polite reminder.

Your initial Late Invoice Letter or Reminder payment reminder should be polite and written in the right way. Simply stating that the payment is now overdue is often enough to prompt payment. Something as simple as the following is fine:

Hi, … (use their first name, you need to be friendly at this point),

Just to let you know that invoice 155 is now due for payment. I’d appreciate if you could settle as soon as possible. I’ve re-attached the invoice for your reference.

Many thanks,


If no payment is forthcoming and you do not receive a response from the client asking for an extension, you should then send another email. This time, explain that the invoice is now overdue and include a statement of the outstanding cost. This should be on your letterhead and look formal, but your email should still be friendly and polite in its tone.

At this point, if you still have outstanding work for the client, you should put it at the bottom of your to-do list. After all, it’s hardly worthwhile to complete more work you might not get paid for.

If you still haven’t received the money, its time to start calling. It’ s easy to ignore an email but it's much harder to ignore a request for payment made over the phone.

Putting the client on the spot in this way should give you a clearer idea of their intentions, and help you decide what course of action to take next.

If the client still doesn’t pay, then you still need to chase. If payment is promised, ask for the date it will be made by. You should also make it clear that you will cease all work for the client until the invoice has been paid.

4. Call in the law

If it starts to become clear that the client is not going to pay, its time to take legal action.

Telling the client that you are escalating the problem is often enough to solve it. Explain that you are considering County Court action. A County Court Judgement against a company can adversely affect the credit rating of a company for six years. Often the threat of a CCJ will get the desired response within the processed 28 day period.

You could also consider a Statutory Demand. A Statutory Demand must be sent by registered post or similar to prove it has been received, and it can be a powerful incentive to pay what’s owed. It gives 18 days to resolve the issue and, if not, the debtor must pay in full within a further three days (21 days in total). Once this period is up you can wind the offending company up (compulsory liquidate) to try and get what is owed.    

What about a Debt Collection Agency?

Despite their negative reputation, good debt collectors are responsible, organised and reputable businesses who can simply take the hard work out of a challenging situation for you. They don’t have any special powers, they have long experience and a rigorous protocol in place for getting the job done. They usually charge between 5% and 15% of the unpaid invoice as a fee for their services, and many of them will operate on a ‘No Win, No Fee’ basis.

What about Invoice Finance?

There is another solution to late-paying customers – Invoice Finance. Rather than having to wait for an invoice to be paid, it lets you use that invoice as the security for a loan.

What this means in practice is that you can receive up to to 90% of the cash tied up in your unpaid invoices immediately after you send them. The remainder will be paid to you, minus fees, once the customer settles the outstanding balance.

Invoice Financing provides an ongoing credit facility that protects you against late payment – because it ensures you get paid fast even when customers are slow. The more work you do, the more cash you will have to call on.

How does Invoice Finance work?

Invoice Finance provides ongoing cash advances based on the value of invoices you have issued, but have yet to be paid for.

  1. You provide a service or product to your client and agree on payment terms, and follow up with an invoice.
  2. You then notify your invoice finance lender, who will advance you up to 90% of the value of the invoice as a cash advance, usually within 24 hours of the notification.
  3. Once your client pays the invoice, you receive the remaining value of the invoice. At this stage, the lender takes their fees.

There are various types of Invoice Finance arrangement and, with some, the lender will take care of chase the late payers for you. Some even offer the option of Bad Debt Protection as part of their service, which means even if your customer goes bankrupt or for other reasons fails to pay, you don’t lose out.

How Rangewell helps you find the Invoice Finance you need

There are many Invoice Finance providers, and the costs and charges they apply can vary.

What’s more, some providers specialise in certain business sectors. To get the most appropriate Invoice Finance arrangement for your particular business, you need expert help.

At Rangewell, our team of business finance experts work with you to get to know your business and understand the kind of arrangement and features you need. They can help you find lenders who work in your sector and secure the most competitive deal, complete with any extra services – such as bad debt cover – that you require.

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