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Also known as an ‘outstanding payment letter’, ‘debt recovery letter’ or ‘overdue invoice letter’, a late payment letter is a handy tool to have on file.
Here’s how to write a letter for unpaid invoices – whether it’s a polite nudge, clear reminder, or a final strong letter for outstanding payment.
To make the process even easier, you can also download our late payment letter template to help recover an overdue invoice.
Late payment has sadly been an ongoing problem. The government estimates that more than £23.4 billion is owed to UK businesses, with small businesses waiting for around nine overdue invoices at any one time.
A review into late payments was announced towards the end of 2022, which could also see a crack down on bigger businesses not paying suppliers on time.
You've received a purchase order from a customer, sent the items, and issued an invoice – yet you haven't received payment. What do you do now?
Most of the time, late payment can be easily settled with a quick overdue invoice email to your customer, gently reminding them that they haven’t paid.
When that doesn’t work, however, or you get no response, a letter in the post can help to formalise the situation. Make sure you’ve got an up-to-date address for correspondence, and keep a copy (and record) of everything you send and receive.
To get you started, here’s what an initial outstanding payment letter should include, when to send a ‘nudge’ – and if that fails, what to write in a strong letter for outstanding payment.
Did you know you can charge interest on overdue invoices?
The Small Business Commissioner has a late payment calculator you can use to work out how much interest you can charge on top of the outstanding balance.
To use the late payment calculator to work out interest, you'll just need to input the following information:
Hopefully you’ll only ever need to send one polite nudge for late payment. But if not, you may need a couple of other templates to get the message across, including a firm reminder and a final notice letter.
These are the basic details each letter needs to include:
At this stage, it’s important to think about whether you’re making a formal statutory demand. This gives someone 21 days to pay the debt or reach an agreement with you to pay. If they don’t, you can apply to the courts to bankrupt your debtor or wind up their company, but this can be a costly process – so consider whether you’ve exhausted all of your options.
Read more about making a statutory demand at gov.uk, as there are specific forms that you need to use.
If you’re not making a statutory demand, then this letter can simply be a strong letter for outstanding payment. Still, if you don't receive a response, then a statutory demand may be necessary.
Here’s a late payment letter template, giving a reminder of the amount outstanding and due date, plus next steps.
You’ll need to edit this according to your business and circumstances. For example, it might be more appropriate to mention a specific overdue invoice (including the invoice number and any other relevant details), rather than an overdue account balance.
You can also amend this template to turn it into a firm reminder or a strong letter for outstanding payment, according to the steps above. It depends on which stage of the process you’re at.Download
At Simply Business, we often check the most recent legislation and guidance for small businesses, especially when it comes to finance and legal issues. Get hints and tips sent straight to your inbox and check our legal and finance hub for regular updates.
You can also get a lot of insight from gov.uk, especially when it comes to late payments, debt recovery and due compensation. Take a look at their late commercial payments hub for more on charging interest and debt recovery, for quick reassurance of your rights and the proper procedures.
For more guides on managing your business finances, visit our cost of living hub.
There are some things you could try to minimise the chance of late payment.
Make your payment terms clear – your invoice should include details of how to pay, your bank details, and clearly state the date they have to pay by.
Invest in accounting software – this can automate reminders to prompt payment, saving you time on chasing up unpaid invoices.
Consider credit checks – you could look into your customer's credit rating before working with them to help give you peace of mind.
Try using 'proforma' invoices – for new customers you could ask them to arrange payment before you supply the products or services to build trust that they'll pay on time.
If you have legal expenses insurance as part of your Simply Business policy, you have access to a number of useful services through DAS Businesslaw (you’ll just need your voucher code found in your policy documents to register).
DAS has a legal advice helpline, available whether you’re facing a serious legal issue or just want to check something with an adviser. They also offer a range of legal templates and guides to help you with managing tenancies.
Remember, this article is just a guide, and it's always worth seeking professional legal advice.
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Simply Business Editorial Team
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