Avoiding late payments with an invoicing strategy

For Small to Medium-Sized Enterprises (SMEs), the issue of late payments can mean the difference between survival or liquidation. The Department for Business & Trade estimates it costs the economy £11 billion annually, forcing 38 businesses to close their doors every day.

The government is taking steps to change this, with the Commercial Payments Bill having its first reading in the House of Lords in May 2026. It proposes a 60-day hard cap on business-to-business payment terms, new powers for the Small Business Commissioner to fine persistent late payers and a requirement for the boards of large businesses with poor payment records to publish an explanation of how they intend to improve.

But companies need to ensure they have robust procedures for collecting money owed on invoices, as cash flow is the blood of the business. There are steps to take.

For SMEs, the advice is remarkably consistent: make it easy to pay, make expectations clear and follow up systematically.

1. Agree payment terms before starting work

Set out payment terms in writing before work begins. This should include due dates, payment methods and what happens if invoices become overdue. Clear, documented terms reduce disputes and payment delays.

2. Invoice promptly

Invoice as soon as goods or services are delivered rather than waiting until month-end. The quicker the invoice is issued, the sooner the payment clock starts.

3. Make invoices accurate and easy to understand

Ensure that invoices clearly contain all required information, including purchase order numbers, contact details, payment instructions, due dates and a clear description of the work carried out.

4. Offer convenient payment options

Offer customers multiple ways to pay, such as bank transfer, card payment, online payment links or direct debit.

5. Check customer creditworthiness

Before taking on a new customer, conduct credit checks and basic due diligence. This includes previous bankruptcies or a string of liquidated companies. This helps avoid future bad debts.

6. Ask for deposits or staged payments

For larger projects, and certainly those that might strain the company’s resources, request a deposit upfront and agree on milestone payments. This reduces financial exposure.

7. Automate reminders and follow-up

Use accounting software to send automatic reminders before and after payment due dates. Many late payments are simply the result of oversight rather than unwillingness to pay. This involves a structured credit control process:

• Reminder before due date.
• Reminder on due date.
• Follow-up email or call after the due date.
• Escalation procedures for persistent non-payers.

9. Build strong customer relationships

Maintaining regular communication with your customers can help resolve invoice queries quickly.

10. Use your legal rights when necessary

Companies must be prepared to exercise legal muscle when required. Businesses may be entitled to charge statutory interest and claim debt recovery costs on overdue invoices, subject to relevant rules and contractual terms. Just making customers aware of these rights can encourage payment.

A summary of best practice

Many successful SMEs follow this sequence:

1. Credit check new customers.
2. Agree terms in writing.
3. Take a deposit where appropriate.
4. Invoice immediately.
5. Include a payment link.
6. Send automated reminders three to five days before the due date.
7. Phone the customer within a few days of any missed payment.
8. Escalate quickly if payment remains outstanding.

A disciplined invoicing strategy will not eliminate every late payment, but it can significantly reduce delays, protect cash flow and give your business greater financial certainty. 

About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.