Business owners: How to get paid on time and handle late payments
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Posted: Mon 12th May 2025
Eager to start work with a new client or project?
Fantastic! But before you start, invest time in laying the groundwork to make sure that you will get paid on time and avoid disputes with your clients down the line.
Why is this an important issue?
Late payments cast a long shadow over UK SMEs, stifling growth and threatening survival. The latest research by Aldermore Bank suggests that 3.6 million small to medium-sized enterprises have some form of outstanding late payment from customers, leaving them £96,772 out of pocket on average. Late payments have a detrimental effect on the financial health of SMEs. Over a third (38%) of businesses are having difficulties paying essential business costs, and 36% are struggling to pay their own suppliers on time as a result of cash flow issues.
Setting up a solid foundation
Securing clear agreements from the outset is paramount. Make sure you have a contract in place detailing agreed prices and payment terms. Ensure that both you and your clients sign the contract before work commences. This helps mitigate future disputes and safeguards your cash flow.
Watch this webinar to learn how to mitigate the risks of late and non-payment of invoices and manage cash flow more effectively:
If sensitive information is exchanged, a non-disclosure agreement (NDA) is essential. An NDA protects confidential data, preserving trust and preventing potential breaches. Documenting every detail, from payment schedules to data protection, establishes a solid foundation for a transparent and secure client relationship.
What payment terms should I set?
Setting the right payment terms is crucial for managing your business's cash flow. Here’s a guide to help you decide:
One-off goods or services: It's standard practice to offer payment terms of seven, 14 or 30 days after you've delivered the product or completed the service
Longer-term projects with multiple stages: Consider structuring payments around milestones. Bill your client upon the successful completion of each pre-agreed stage. Make sure you clearly document these milestones in your contract or proposal to avoid any future disputes
The duration of the payment terms you offer is ultimately your decision, but always weigh these two key factors:
Your client's financial health: Extending payment terms is like offering a line of credit. If you suspect a client might be facing financial difficulties, it's wise to minimise your risk. Consider shortening the payment window, requesting a deposit, or potentially requiring full payment before starting work
Your own cash flow requirements: How quickly do you need the funds? Factor in your own deadlines for paying suppliers, staff or other business expenses when deciding on payment timelines
Getting your payment terms right is a key part of maintaining a healthy cash flow for your business or freelance work.
How do I make sure that my clients will pay me on time?
Ensuring timely payments from clients is crucial for any business owner or freelancer. To streamline this process, consider these strategies:
Firstly, if emailing invoices, utilise email tracking tools to confirm when clients have viewed your invoice
Secondly, offer convenient payment options by including a direct payment link for card transactions. Simplifying the payment process encourages prompt settlement
Finally, consider sending regular reminders, such as a notice one week prior to the invoice due date and another on the due date itself. These proactive measures can significantly reduce late payments and improve your cash flow
What do I do if my invoices are overdue?
Once an invoice becomes overdue, you need to start taking immediate steps to chase your debtor. Make immediate contact to find out why there is a delay, follow up with phone calls, an email or a letter confirming what was said. If your client still doesn’t pay you, then you should start sending out chasing letters. Here is a suggested timeline for escalation:
If your invoice remains unpaid five days after it becomes overdue, send a first letter chasing payment
If your invoice remains unpaid 15 days after it becomes overdue, send a second letter chasing payment, explaining that if payment is not received promptly, you may charge interest on the debt and/or apply a late payment charge
If your invoice remains unpaid 30 days after it becomes overdue, send a final letter chasing payment, explaining that if payment is not received, you will apply interest and other debt recovery charges and will take further debt recovery action
If you have chased your client and they are still not paying you, then there are a few options available to you:
Using a debt collection agency: While this can be a cost-effective method for getting your money back, taking this step does send a strong message to your client that your business relationship has disintegrated
Alternative Dispute Resolution (ADR): You can use any alternative dispute resolution scheme that you are part of. For example, if you are a member of a trade association which runs its own scheme. If the money is owed to you by a larger business, you might be able to complain to the Small Business Commissioner about them
Statutory demand: A statutory demand is a formal, written demand for payment of a debt that you can send to your debtor without going to court and without paying any kind of court fee. If unpaid, a statutory demand can be used as the basis for a later application to wind up the company
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