Amid rising business, taxes and other costs, clients paying late are an unwanted thorn in the side of small businesses. You can minimise the impact of late invoice payments by improving your credit control, automating chasing and collections and leveraging business finance options, such as invoice financing and working capital loans.  

In this article, we discuss how to manage late payments from clients, including effective tools, strategies and finance solutions.

The impact of late payments on small businesses

Late invoice payments are a common headache for business owners, with 2024 research conducted by Opinium (on behalf of Aldermore) finding that 72% of SMEs had some form of outstanding late payment from customers. And the impact of late client payments can quickly add up, with over a quarter of British SMEs owing between £5,000 and £20,000 in unpaid invoices. 

Delayed client payments can lead to the following issues: 

• Wasted time chasing unpaid invoices.
• Reduced cash flow and working capital.
• Stunted business growth and missed commercial opportunities. 
• Issues paying bills and tax owed, and making your own supplier payments.
• Incurring penalties from HMRC and racking up debt.

What causes late payments from customers?

There are various reasons for late invoice payments occurring. Some are down to customers having internal inefficiencies or financial difficulties, while some can result from your own poor credit control or even relationship breakdowns.

Here are the most common causes of late payments from customers:

• Human error and inefficient payment/accounting systems and processes, including a lack of automation in invoice chasing/collection. 
• Clients experiencing cash flow problems due to economic factors, poor sales or rising business costs.
• Disputes over service/product quality, misaligned expectations or poor communication.
• Clients who deliberately delay payments for their own benefit.
• Lack of contingency plans when those responsible for payment or collections are ill, on leave or otherwise unavailable.

How to reduce late payments from clients and manage the risks

As outlined, late client payments can arise from a range of circumstances, from simple human error to client cash flow issues. However they occur, your business being left out of pocket can have a significant impact.

The good news is that there are various ways to reduce late client payment risk in your organisation, with better credit control processes, from ensuring timely payment chasing/collection and clear payment terms to checking the creditworthiness of potential customers.

Here are our 6 ways to reduce the risks of late invoice payments from clients:

1. Perform credit checks on new customers

Before doing business with a new client, conduct thorough credit checks to assess their payment history and reliability. While business credit scores won’t tell you everything, they can give you an idea of the client’s history of handling debt and repayments. 

There are three main credit reference agencies in the UK you can use: TransUnion, Equifax and Experian. You’ll need the client’s permission to approach them and some details via a credit application form, which should include:

• Full name(s) of the business and any names it trades under.
• Full names of the business owner/s.
• The name and contact details of whoever deals with payments or enquiries in the business.
• The business registration number.
• Requests for consent to approach credit agencies/ banks/references.

2. Set clear payment terms

Sometimes, payments are late simply because you and your client have different ideas of when the bill should be settled. It’s important to establish clear and concise payment terms before starting any work, ensuring these terms are documented and agreed upon in writing. This includes setting payment due dates, outlining penalties for late invoice payments, and offering early payment discounts​.

Having these terms recorded before beginning your working relationship also gives you a firm foundation for resolving any future disputes.

3. Invoice quickly and accurately

It’s good practice to send invoices immediately after delivering goods or services, ensuring they’re complete and error-free. Sending these while the work is fresh in the client’s mind minimises the risk of them simply forgetting, while also lowering the chances of disputes over invoice details. 

Online invoicing software, often part of accounting tools, simplifies the process(backed by automation) while giving you a clear digital record of when you sent invoices.

4. Make it easy for clients to pay you

Different clients may prefer to pay in different ways, so provide various payment methods, such as bank transfers, online payments, and direct debits, to make it easier for clients to pay you on time. 

5. Send payment reminders

Set up a schedule for regular payment reminders and use automation to trigger alerts for when to send reminders out. Whether clients are just forgetful or slow to pay, regular reminders can be an important nudge to get your invoices paid.

6. Use efficient payment collection/chasing tools and processes

Known as dunning, efficient processes for payment collection and chasing unpaid invoices are key to reducing the risk and impact of overdue invoices. There are various ways to help make your process slick and effective, including using dedicated chasing/collection tools (like Chaser), which can be effective in maintaining consistent follow-up without overwhelming your staff​. 

Remember, the goal isn’t to harass clients into paying, but to provide clear communication that encourages them to do so promptly. Establish a timeline with key actions and relevant communication at each stage. Learn more in our dedicated article on dunning best practices, process steps and effective tactics.

6. Leverage cash flow finance solutions

Whatever new processes and technology you implement to reduce the risk of later client payments, there will always be situations where payments are delayed. If you already have lengthy payment schedules or inconsistent/seasonal revenues, leveraging short-term finance solutions can provide a useful backstop and way of preventing cash flow gaps. 

Invoice financing, working capital loans, trade credit agreements and business overdrafts are all forms of finance for easing cash flow in key periods and reducing the impact of late-paying customers. 

How to chase unpaid invoices more effectively

Alarmingly, research from The Office of the Small Business Commissioner (OSBC), released alongside the UK government’s small business plan in July 2025, showed that 38 companies go out of business every day due to overdue invoices. The cost of late invoice payments to the economy is a huge £11bn. The research also showed that small businesses spend an average of 86 hours chasing debt. 

So, how can businesses reduce the time spent chasing clients and address the issues of recovering unpaid invoices in the UK? We outline some actionable steps to take:

4 key steps to chase and recover unpaid invoices in the UK 

1. Be proactive: Start by sending polite but firm payment reminders as soon as the invoice is overdue. Use a combination of emails and phone calls to ensure your message is received and understood. A friendly reminder can often prompt a quick response and payment from the client​, particularly if they have simply forgotten.
2. Follow up consistently: If the initial reminder doesn’t yield results, follow up more assertively (and use automation workflows to trigger reminders). Highlight the overdue invoice details, such as the invoice number, amount and due date. Offer to resend the invoice if necessary and ask for a specific payment date​.
3. Personalise your approach: When chasing payments, maintain a personal and professional tone, as good relationships can help your invoices to be prioritised. However, this doesn’t mean not using automation tools, as you can incorporate personalisation in workflows and use AI to speed up the process while ensuring messaging is friendly, tailored and consistent.
4. Know when to escalate: If this still doesn't bear fruit, before initiating legal proceedings, send a final demand letter to the client. This letter should clearly state the amount owed, the due date for payment and the potential legal consequences if payment is not received.

How to deal with non-paying clients: Legal action and statutory demand

You may reach the point where you need to consider legal proceedings and demands. If this is the case, first consult with a legal professional to understand your options and the best course of action, based on your specific situation.

For smaller invoice amounts, you may be advised to file a claim in small claims court, whereas when you’re dealing with larger amounts, you might need to take more formal legal action​. 

What are my rights if a client doesn’t pay on time?

SMEs have the right to charge interest on late invoice payments and claim compensation for debt recovery costs. The Late Payment of Commercial Debts (Interest) Act 1998 allowed businesses to charge statutory interest (currently 8% plus the Bank of England base rate) and recover reasonable costs incurred in the process​. 

Also, in 2025, the UK government introduced new late payment laws to protect businesses suffering from the impact of delayed invoice payments, including enforcing shorter invoice payment windows and issuing fines, where appropriate.

What to do if a customer doesn’t pay?

If a client continues not to pay their debt, you may need to take things further and file a lawsuit. In this case, once you’ve liaised with a legal expert, you’ll need to prepare all necessary documentation, including the contract, invoices and communication records, to support your case in court​.

When can I send a statutory demand?

If a client has failed to pay an undisputed debt within the agreed time period,  exceeding £750 (for a company) or £5,000 (for an individual), you can issue a statutory demand. This gives them 21 days to pay or agree to the terms.

If the invoice remains unpaid, seek legal advice and potentially take actions like winding-up petitions for companies or bankruptcy proceedings for individuals.

Cash flow finance solutions for dealing with late invoice payments

Your business can’t afford to stand still while you’re waiting to get paid. That’s where financing solutions can help plug gaps to keep you moving while you resolve the issue. Here are some effective cash flow finance solutions to consider:

Invoice financing 

Using invoice financing allows businesses to unlock the cash tied up in unpaid client invoices. You’ll get an advance of around 80-95% of the invoice value, to access working capital fast without waiting for clients to pay. This helps in managing cash flow more effectively and covers essential expenses, such as payroll and supplier payments​. 

Businesses receive the remaining funds (minus fees) once the client has paid, with different solutions available, including invoice discounting, factoring and selective invoice finance. Your choice depends on how often you need financing and the level of control you want over the collection process. 

Merchant cash advances 

A merchant cash advance (MCA) offers quick access to working capital based on your future card sales. Instead of making fixed monthly repayments, you repay a pre-agreed percentage of daily or weekly sales to align with your cash flow. Funds can be used to cover regular expenses, manage inventory or invest in new growth opportunities.

MCAs are well-suited to retail, ecommerce and hospitality, as they account for seasonal revenue fluctuations. They usually don’t have a fixed repayment deadline, and approval is often faster than traditional loans, as funding decisions are largely based on your sales performance. 

Trade credit/BNPL for B2B

Using trade credit agreements enables businesses to extend payment terms with suppliers and get good upfronts without causing gaps in cash flow. You can defer or spread your payments to allow time to get revenue through the door first.

This can be arranged directly with suppliers or by using digital BNPL platforms for B2B transactions, such as iwocaPay. This can simplify the process, speed up payment collection and ease concerns over later payments. You can integrate solutions directly with online checkouts or invoicing systems to automate credit checks, payments and collection while building stronger client relationships and encouraging repeat business.

Short-term business loans 

A short-term business loan provides a lump sum that can be used for various operational needs, including managing cash flow gaps caused by late payments.  These are often unsecured loans, meaning you don’t need to use business assets as collateral, offering faster applications and approvals and more flexibility. 

At iwoca, we offer flexible business loans designed to help SMEs manage cash flow effectively, maintain financial stability and invest in future growth. Our short-term loans are unsecured, tailored to your cash flow needs and easily accessible online, with funding decisions within 24 hours. 

You can borrow £1,000–£1 million for days, weeks or months (up to 60 months). Learn how to apply for an iwoca loan and use our handy business loan calculator to see your likely repayments.