What Should I Do if Clients Pay Late

Introduction

Late-paying clients can cause serious cash flow problems, especially for small businesses that rely on regular income to cover day-to-day costs. According to research by the Federation of Small Businesses, late payments cost UK firms billions every year and can threaten the survival of many small enterprises. Knowing what to do when payments are delayed is vital for protecting your finances and maintaining good client relationships.

This guide explains how to chase overdue invoices, when to charge interest, your legal rights under UK law, and how to prevent late payments in the future.

Understanding why clients pay late

Clients pay late for a variety of reasons. Some genuinely forget, others have cash flow problems, and a few take advantage of lenient payment terms. Before reacting, it helps to understand which situation you are dealing with. If the delay is short and communication is open, a polite reminder often solves the problem. If the client repeatedly ignores you or avoids payment altogether, you may need to take formal steps to recover the money owed.

Check your payment terms first

Before chasing a payment, review the terms stated in your contract or invoice. Under UK law, unless otherwise agreed, the default payment period for business-to-business transactions is 30 days from the date of receiving the invoice or goods. You can agree on different terms in writing, such as 14 or 60 days, but both parties must have accepted them.

Make sure the due date is clearly stated on every invoice. This helps you enforce your rights and gives you a clear reference point when following up.

Step 1: Send a friendly reminder

If a client misses the due date, start with a courteous reminder. Many late payments are simply the result of oversight or admin delays. Send an email or call to confirm receipt of the invoice and ask when payment will be made. Keeping communication polite preserves goodwill and encourages quick resolution.

Example email:
“Hi [Client Name], I hope you’re well. I just wanted to check whether you received our invoice dated [date], which was due on [date]. Please could you confirm when payment will be processed? Many thanks.”

If no response is received within a few days, follow up with a firmer message that outlines the overdue amount and the original terms.

Step 2: Issue a formal reminder

If reminders are ignored, send a formal letter or email marking the invoice as “overdue.” Restate the amount due, the original payment terms, and the number of days overdue. At this stage, you can also mention your right to charge statutory interest and debt recovery costs under the Late Payment of Commercial Debts (Interest) Act 1998.

This act allows you to charge interest at 8% above the Bank of England base rate on overdue commercial invoices. You can also add a fixed compensation amount depending on the size of the debt: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.

Often, simply referencing this right is enough to prompt action.

Step 3: Set a final payment deadline

If payment still does not arrive, send a “final demand” letter. Give a clear deadline, usually seven days, for the payment to be made before you take further action. Keep your tone professional and factual. Remind the client of the steps you will take if they do not comply, such as referring the matter to a solicitor or using a small claims process.

Example wording:
“Unless payment of £[amount] is received by [date], we will begin formal proceedings to recover the debt. Please treat this letter as our final reminder.”

Keep a copy of all correspondence. These records will be useful if the matter escalates.

Step 4: Consider formal recovery options

If the client still fails to pay, you have several routes for recovery depending on the amount owed and your relationship with the client.

Mediation or negotiation: Sometimes, disputes arise over the quality of work or terms. A neutral mediator can help resolve these issues without going to court.

Debt collection agency: You can appoint an agency to recover the payment on your behalf. They typically charge a commission or a fixed fee.

County Court claim: If other methods fail, you can file a claim through the Money Claim Online service to recover the debt through the small claims court. This applies to debts up to £100,000.

Statutory demand: For debts over £750 owed by a company, you can issue a statutory demand. If the company does not pay within 21 days, you can apply to wind it up. This should be a last resort, as it can end the business relationship permanently.

Step 5: Review your client credit control process

Dealing with one late payment is manageable, but recurring delays can seriously affect your business. After resolving the issue, take time to review your credit control process. Consider:

Running credit checks on new clients before agreeing payment terms.

Asking for deposits or partial payment upfront.

Shortening payment terms to 14 days for smaller projects.

Automating invoice reminders through accounting software.

Making it easy for clients to pay online through multiple payment methods.

These measures can reduce the risk of future problems and improve your cash flow.

How to maintain professionalism

Chasing payments can be stressful, but staying professional is key. Avoid angry or emotional messages. Remain calm and stick to the facts, citing the invoice, dates, and legal rights. This approach maintains your reputation and shows you are serious about enforcing payment.

If the client has genuine financial difficulties, try to agree on a payment plan. Partial or staged payments may be better than none at all and can help preserve the relationship for future work.

Protecting your cash flow

To protect your business from late payments, it helps to build a financial cushion. Set aside a small reserve fund to cover expenses when clients are late. Regularly monitor accounts receivable so you know which invoices are approaching their due date. Using accounting tools such as Xero, QuickBooks, or FreeAgent can automate these checks and issue reminders automatically.

You can also take out trade credit insurance to protect against non-payment by key clients. While it adds an extra cost, it can safeguard your income if a client goes into liquidation.

When to seek professional help

If a debt remains unpaid after multiple reminders, or if the amount is large, it is worth seeking legal or professional advice. Accountants or solicitors can help you draft compliant letters, calculate statutory interest, and manage claims efficiently. In some cases, the cost of professional help is recoverable from the debtor.

Conclusion

Late payments are an unfortunate reality of running a small business, but knowing your rights and following a structured process can make all the difference. Start with polite reminders, escalate firmly, and use legal rights if needed. Keep accurate records and remain professional at all times.

Prevention is the best long-term strategy. Clear payment terms, deposits, automated reminders, and strong credit control processes help ensure your clients pay on time and your cash flow stays healthy. By taking these steps, you can focus on growing your business without being held back by overdue invoices.