How to deal with late payments

Late payments may be the blight of growing businesses across the UK, but according to Funding Options' Conrad Ford, managing these delays comes down to process. Here's why.

Late payment can be a big problem for businesses offering trade credit. If you allow your customers to pay you on terms, cashflow can occasionally be a delicate balancing act, and a late payment could put your plans off course.


Prevention is better than cure when it comes to late payments, and there are a few ways you can reduce your chances of being paid late.

The first is right at the beginning of the process. When you encounter a new customer for the first time, you should carefully vet them to decide whether they’re likely to pay you on time and in full.

There are lots of websites where you can check the credit of businesses free of charge, and it’s also worth taking a look at Companies House, as their database will include details of payment trouble in the past such as CCJs. If you decide to work with a potential customer, make sure they’ve got an up-to-date copy of your terms and conditions and a credit limit established, so everyone involved knows where they stand from the outset.

The word ‘credit’ derives from ‘belief’ or ‘trust’, and it’s important to remember that by offering terms you’re putting faith in your customer. Although you might feel you should give new customers the benefit of the doubt, remember that payment terms are a benefit you offer, not a right, and if your potential new customer has a history of not paying on time it’s reasonable to refuse them this aspect of your service.


Lots of fast-growing businesses find their customer base grows faster than their finance team — if they have one at all — and even a simple credit control process can be a big help with reducing late payments. If your payment terms are clear and you issue regular reminders, you’ll probably find that instances of late payments go down.

It’s worth remembering that late payments are often the result of human errors like forgetting an invoice is due or inputting bank details incorrectly, and a simple process can help you keep customers informed and make sure your invoice isn’t forgotten. Also, many of your customers may not have a formal finance department, so having some structure in your process will help theirs too.

Consider implementing a simple system that issues reminders at decreasing intervals — perhaps weekly at the beginning of the terms, every other day in the last week before the due date, and daily when the invoice becomes overdue. There’s a lot of software out there that can do this, some of which integrates directly with other accounting software — and you might also consider hiring a professional credit controller if your company is larger or you issue lots of invoices.

Another way to improve your process is by incentivising prompt payment, either by offering a discount if the invoice is paid early, or charging a penalty if it’s paid late (which can be clearly stated in your T&Cs). Finally, consider refusing future business from problem customers — if they’re regularly paying you late, it might be better not to have the headache at all.


Even if your customers have been carefully screened and you’ve got a robust credit control process in place, you’ll still find you get paid late occasionally — it’s very difficult to eliminate late payment entirely. In some cases, a late payment will put you in a difficult position, and you may choose to use finance to tide things over.

Invoice finance is an obvious option, because it advances you cash based on the value of outstanding invoices. However, it’s worth bearing in mind that if you want to finance an overdue invoice, not all lenders will consider it, and usually an invoice overdue for more than 90 days won’t be financeable.

However, selective invoice finance could be helpful here, because it finances specific invoices rather than your whole sales ledger — if you’ve got another invoice from a more reliable customer, you could get an advance on it to buy time to deal with the overdue invoice.

Another option to cover a late payment is the area of the market broadly termed ‘revolving credit’, which comprises alternatives to traditional bank overdrafts. With these products you get a pre-agreed credit limit that you can dip into when you need it, and aside from initial setup fees, you’ll only pay interest on what you use. Overall, they’re a useful safety net to have in place.


There are lots of things you can do to deal with late payment. Many of them come down to process — making sure you’re checking out potential customers thoroughly at the start, and issuing consistent reminders and chasers in the middle. With all this in place, if you’re still suffering from late payment you could use finance to cover the shortfall, knowing that your absolute last resort is refusing to work with problem customers in the future.

Conrad Ford is chief executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. 

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Conrad Ford

Conrad Ford is the managing director of Funding Options, an award-winning team of business finance experts who specialise in helping businesses get the loans they need. Ford is a chartered management...