Coping with late payments as a small business

If your customers have payment terms you need to manage cash flow carefully, and a late payment can throw things off. Here are a few ways you can cope.

Late payment is an issue that most businesses will occasionally struggle with, whether they’re a global powerhouse or a small local firm. If your customers have payment terms you need to manage cash flow carefully, and a late payment can throw things off — here are a few ways you can cope.

Pre-emptively protect your business

The best strategy is to avoid late payments to begin with, and this starts right at the beginning of a relationship. If you’ve had contact with a potential new customer you’ve never worked with before, you should do your due diligence and look into their payment history with other businesses.

Companies House is a good place to start, because their searchable database will have details of any issues like CCJs in the past, and there are also a few websites where you can check business credit profiles for free. If you go ahead with a new customer, another pre-emptive step to take is giving them an up-to-date copy of your terms and conditions, and establishing a credit limit for them, so they’re left in no doubt about what you expect.

Some business owners feel uneasy about potentially turning new customers away, but it’s important to remember that credit terms are a service you offer, not an obligation, and if a new customer has paid other firms late in the past there’s reason to believe they might do the same to you.

Put a process in place

A lot of the time, late payment is caused by human error rather than malicious intent — it’s a result of your customer forgetting the invoice is due, putting in the wrong bank details, or not getting a reminder from you. If your business is fairly small, you probably don’t have a dedicated finance department, and this means that even a basic credit control process can make a big difference to instances of late payment.

For example, look into simple ways to automate email reminders so they go out every week at the beginning of the payment terms, more frequently in the week leading up to the due date, and every day once the invoice is overdue. Simply keeping your customer aware of the invoice might make the difference — and at the very least, it means they can’t claim to have forgotten about it.

Also, consider adding an incentive for prompt payment. Charging extra for overdue invoices or offering a discount for those paid early may encourage customers to get the invoice settled sooner rather than later.

Using finance

With a good process in place and a standard set of due diligence checks on new customers, you’re well on the way to reducing late payments. But most businesses find they’re difficult to eliminate entirely, which means occasionally you’ll have to roll with the punches and handle the cashflow strain of a late payment.

There are a few types of business finance that are useful in this situation. The most obvious is invoice finance, which is cash advanced against outstanding invoices. However, it’s not always possible to finance an overdue invoice, and many lenders have a limit — for example, if it has been overdue for 90 days or more.

However, invoice finance could be helpful less directly, by providing an advance against the more reliable invoices in your ledger. Many providers offer a full facility, where you finance all of your invoices, and others offer ad-hoc facilities where you can cherry pick specific invoices to fund. If you’ve got a steady stream of invoices from reliable customers, you could unlock this money early to cover the shortfall caused by the late payment.

Also worth mentioning is invoice factoring, which includes professional credit control services — which should in theory minimise the likelihood of being paid late in the first place.

One other area worth exploring is ‘revolving credit’. This type of product is similar to a traditional bank overdraft, so you have a set credit limit that you can dip into when you need to. Aside from setup fees, you only pay interest on what you use, so it can be a useful backup plan when an invoice is overdue.


Many of the things you can do to cope with a late payment are more structural than tactical. By only agreeing to work with reliable businesses and implementing a credit control process, you’ll minimise the late payments that are a result of forgetfulness or lack of process on the customer side — and with a range of finance that can help, you’ll be able to get through the occasional ones that still slip through the net.

Conrad Ford is chief executive of Funding Options.

Further reading on late payment

Conrad Ford

Conrad Ford

Conrad Ford is founder and CEO of Funding Options, an online marketplace for UK business finance.

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Late Payment

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