Late-paying customers are more than an inconvenience; they can choke cash flow, strain supplier relationships, and stall growth. According to recent surveys, around half of UK SMEs experience overdue invoices at any given time—worth billions locked up outside their bank accounts. If you’re wrestling with the problem, this step-by-step guest post will help you strengthen your credit management, recover what you’re owed, and keep your business finances healthy. Along the way, we’ll weave in essential pointers on Small Business Debt Recovery so you’re ready if softer tactics fail.
1. Start with Prevention, Not Cure
Crystal-clear payment terms
- Issue written contracts or T&Cs that spell out payment deadlines, accepted methods, and late-payment penalties.
- State that you reserve the right to charge statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 (currently Bank of England base rate + 8%).
Know your customer
- Run basic credit checks via Companies House, commercial credit bureaus, and trade references.
- For new or high-risk clients, consider deposits or staged payments.
Invoice like clockwork
- Invoice immediately after goods or services are delivered.
- Include purchase-order numbers, bank details, and a friendly reminder of due dates.
- Offer electronic invoices and multiple payment options to reduce friction.
- Build a Consistent Chase Routine
Polite reminders
Send a gentle email a week before the due date, followed by a same-day “just checking you received the invoice” note. Often, lateness is oversight, not malice.
Escalating messages
If the invoice passes 7–14 days overdue, switch to firmer language and include a copy of the original invoice. At 30 days late, add a brief note that statutory interest and a fixed late-payment fee may apply.
Pick up the phone
A direct call to accounts payable can clear up misunderstandings and secure commitment to a payment date. Document the outcome in writing.
3. Leverage Statutory Rights
Under UK law, you can:
- Charge statutory interest (8% + BoE base rate) from the day after payment is due.
- Add a fixed recovery fee of £40–£100 depending on invoice value.
- Claim reasonable debt-recovery costs if they exceed the fixed fee.
Many SMEs hesitate to enforce these rights, fearing customer backlash, yet adding them—even as a line item—signals you’re serious and often triggers payment without harming the relationship.
4. Use Alternative Dispute Resolution (ADR)
If late payment stems from a quality dispute, ADR can resolve matters faster and cheaper than court. Mediation or arbitration clauses in your contracts show you’re committed to fair outcomes while protecting cash flow.
5. Formal Small Business Debt Recovery Options
Letter Before Action (LBA)
A solicitor’s LBA gives the debtor 14 days to settle before court proceedings. Costs are modest and success rates high.
County Court (Small Claims Track)
For debts up to £10,000, file online via Money Claim Online for a flat fee. If uncontested, you’ll obtain a County Court Judgment (CCJ) that can seriously damage the debtor’s credit rating.
High Court Enforcement Officers (HCEOs)
For judgments over £600, transfer to the High Court. HCEOs can visit premises, seize assets, or agree repayment schedules—often prompting immediate settlement.
Debt-collection agencies
Reputable agencies work on a no-win-no-fee or commission basis. Choose one regulated by the Financial Conduct Authority (FCA) and check reviews before signing.
6. Protect Cash Flow Going Forward
- Early-payment incentives (e.g., 2% discount if paid within 10 days).
- Invoice-financing or factoring to unlock cash tied up in receivables.
- Automated credit-control software that schedules reminders and flags risk.
- Join the Prompt Payment Code to signal best practice—and encourage your customers to do the same.
7. Know When to Walk Away
Occasionally, chasing a chronically late or insolvent client costs more than it recovers. Review profitability by customer, factor in time spent on credit control, and be ready to cut ties. Your energy is better invested in reliable, growth-oriented relationships.
Final Thoughts
Tackling late payments requires a blend of proactive policies, courteous persistence, and the confidence to escalate when needed. By embedding robust credit controls, enforcing your legal rights, and understanding the formal routes of Small Business Debt Recovery, you’ll keep cash flowing and lay foundations for sustainable growth—no matter how challenging the economic climate.
