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Payment terms: what to do when a client doesn’t pay


Late payments, or not getting paid all together, are huge problems for small business owners across the UK. In fact, data from our SME Insights Report reveals that almost two thirds of small business owners say that late payments from customers are a problem for their business.

At the time of our survey, 54 per cent of the small businesses we spoke to were waiting on overdue payments of £5,000 – with 22 per cent saying they were owed between £10,001 and £30,000.

But how can you prevent late payments? Keep reading our guide for some tips on getting paid.

What to do when a client doesn’t pay

If your business is (or could be) affected by late invoice payments, there are a few measures you can take. As a business owner, it’s perfectly acceptable to set your own payment terms and expect your clients to respect them.

You should monitor the ‘ageing times’ of your invoices – the length of time that elapses between you raising an invoice and it being paid. Try to keep these periods short and manage your expenditure around them, to help avoid troughs in your cash flow.

It’s important to act as soon as your payment becomes overdue. According to our data:

  • less than 15 per cent of late payments are settled within three days
  • only 33 per cent are settled within a week
  • just 23 per cent of late payments are settled within seven to nine days
  • 13 per cent are settled after 21 days have passed

If the agreed upon time has passed and your client still hasn’t paid, you can write a late payment letter. Depending on the circumstances, this can be a friendly reminder or more of a final warning.

If this is your first time having to send a late payment letter, we have a free late payment letter template to help you get started.

Preventing late payments

But before late payments make running your business even more difficult, there may be ways you can prevent them before you even raise the invoice. Every business will be different, but it’s good practice to:

Vet your customers

Depending on the nature of your business, you may be able to do some background research on your clients before doing business with them. Consider running credit checks to ensure they have a track record of prompt payment. Many credit reference agencies have affordable services for small businesses.

Outline payment terms

Try to make your payment terms clear from the outset. This will help your client plan for payment, and makes it more difficult for them to claim they didn’t know the deadline. 

In the UK, the standard payment date is usually 30 days after the invoice has been issued – though you can change this as long as it’s clearly stated in the payment terms. You may prefer a specific date, cash on delivery, or even up-front payment instead.

Make sure your payment terms are clearly displayed on invoices, along with details of payment methods. If you accept payment by bank transfer, make sure your account details are included too.

Offer an early payment discount

Another way to encourage prompt payment is by offering an early payment discount. This is when your buyer can pay a discounted price, in return for paying earlier than the payment deadline.

For example, your payment terms could use the standard 30 day payment deadline, but offer a two per cent discount if payment is made within 14 days.

This can be a great way to build a strong relationship with your buyer – and could mean repeat business.

Unpaid invoice (despite your best efforts)?

Sadly, payments can still often be late. If you do run into difficulty, here are a few things you can do to speed things up and minimise damage.

Chase invoices

This might sound obvious, but you should always chase outstanding invoices. Remember, your clients will be concerned about their own cash flow, and this can mean they pay you at the last minute. Often, a phone call or email is all that’s needed for settlement. Don’t be afraid to chase late-paying customers – you’re well within your rights to do so.

Keep money in reserve

If possible, you should keep some reserve funds. This helps make sure you’re never critically short of cash because of an unpaid invoice. The size of this fund will depend on the average value of your outstanding invoices (and your regular expenses) but, at the very least, it should be large enough to cover essential costs like wages, rent, and stock.

Be patient where you can

As stressful as invoice chasing can be, maintaining a good relationship with your clients is important. Many businesses and customers may be struggling too, and the best way to mitigate damage will be to stay in contact. So be reasonable when chasing late payments (and take expert legal advice if you need to).

We have a whole guide on how to handle difficult conversations as a business owner which may be of help.

How to collect money owed for work done

Factoring and other invoice finance products can provide you with an advance of up to 90 per cent of the value of your invoices within 24 hours of them being raised. Your factoring partner will pay you the cash, and then take on the work of chasing your client for payment. Once the invoice has been settled, they’ll pay you the outstanding balance, minus a pre-agreed service fee and interest.

A factoring facility can be cheaper than using your business overdraft and will often come with the option of using your own branding. This means communication with your customers doesn’t come out of the blue from a third party.

Can customers withhold payment?

They can, but not necessarily within the law. If you’re having a serious problem with non-payment of invoices, or a customer not paying for a specific job, you may need to take legal action and work with an expert in commercial law. Take real care before acting, to prevent the customer putting in a claim for breach of contract.

Not at that stage yet? If you’re struggling with a customer refusing to pay for work done, the first step is to issue a late payment demand or ‘letter before action’ – use the free template we linked to above to help you draft this.

Have you been impacted by late payments? Let us know in the comments below.

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Rosanna Parrish

Rosanna Parrish is a Copywriter at Simply Business specialising in side hustles – as well as all things freelance, social media, and ecommerce. She’s been writing professionally for nine years. Starting her career in health insurance, she also worked in education marketing before returning to the insurance world.

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