How to deal with late payments

There are two aspects to ‘late’ payments. There’s the long running thorny issue of waiting for money that doesn’t arrive by the agreed date. And just as problematic is the long payment terms in the contract you’ve agreed that mean you have to wait.  

These are poor payment practices and involve your customer treating you as a bank to the benefit of their own business while your cashflow and mental health struggle.

Prevention is better than cure. Try: 

• Checking out whether a new customer is a good payer. Ask for references, check with credit reference agencies, check the Department for Business and Trade publicly available payment data if your customer is a large company, and check whether they have a Fair Payment Code Award
• Asking for payment before you start the work, to cover the amounts you will have to spend in delivering the goods or services
• Asking for staged payments: as parts of the work are finished or delivered get part payment before doing any more
• Getting payment terms clearly, in writing, before agreeing to do any work so that you know the date the money will hit your bank account
• Setting out your own payment terms before accepting work from the customer, rather than agreeing to their payment proposals. 

It can be difficult to find the courage to push back against the terms offered by a bigger company. However, customers need good suppliers. They can’t afford for you to supply their competitors instead. Nor can they afford for you to go bust. It costs time and money to find new, reliable suppliers and in the meantime your customer may lose their customers because they can’t deliver as promised. Be brave. Negotiate before accepting any work and get all the details in writing as to how you’re going to work together. 

If you have accepted payment terms in a contract, of 90 or 120 days, you have no choice but to wait. Make sure you can manage your cashflow and pay your own suppliers and bills while you wait. If you can’t, and have to borrow to bridge the gap, it’s costly, eats away at your margins and you may find lenders aren’t keen to lend. 

You can charge interest and compensation on payments that aren’t paid by the agreed date. Make it clear on your invoices as well as in the contract that you will do so.  

Check when you submit your invoice that all the necessary information is on there so that it can be paid. 

A few days before the payment is due send a friendly reminder that you are expecting the payment by xx date. 

Chase up unpaid invoices even though it takes time away from the business. Contact the Office of the Small Business Commissioner for free information and support. Only take legal action as a last resort and not before you’ve talked to us. 

Ultimately if a customer is a bad payer you may need refuse work and walk away.  

Liz has a long-standing relationship with the credit unions and ABCUL and has been Chair of the CU Foundation and was founding Chair of the AIG (ABCUL Inclusivity Group).   

Until she took up the role of SBC Liz was a Financial Inclusion commissioner, an Ambassador for Business Debtline, a member of the Fundraising Regulator and Equity Release Council Standards Boards, NED of the LSB and ran BackinBusiness.org.uk to give small businesses a voice with policy makers. She has run production businesses and worked freelance and works with Boards and small businesses on improving governance, trust and culture, inclusivity, employee engagement, and understanding customer behaviour. She is also a communication and presentation skills coach and chairs national and international conferences.