How to deal with overdue invoice payments

Late payment continues to prove a major headache for many small businesses. According to the Federation of Small Businesses, late payment impacts 52% of small UK firms, with an estimated 56 million hours of productivity lost each year and 50,000 small firms going bust as a consequence.

In September 2024, the government unveiled a new Fair Payment Code as part of a package to tackle late payment in the UK. The Code is a tiered system of awards that acknowledges best practice in payment.

Reasons for late payment

Late payment can cause serious cash flow issues and otherwise good customers can be bad when it comes to paying you on time. Large companies are often the worst culprits, with their accounts people habitually ignoring suppliers’ payment terms because they believe they can get away with it.

Even if cash flow impact is manageable, having to chase repeatedly for payment can be irritating and time-consuming. In limited instances, your invoice may have genuinely been mislaid, or not sent on by your contact to accounts for payment. If this happens, send a replacement and request payment to existing terms.

Sometimes late payment can be your fault, with incorrect details on your invoices leading to unnecessary delays. Your customer should have raised any problems long before they received your invoice, so this isn’t a valid reason for not paying you when due. Sort out any genuine issues quickly and make sure you send your invoices as soon as possible.

Sometimes customers have understandable reasons for late payment. They could be waiting for payment from their customers. If you’re not expected to wait a long time, showing some flexibility is advised. Obviously, you’ll want to protect your customer relationships, so your approach must be tactful and professional. However, if they end up not paying you, they’re not a customer, while some customers can, quite literally, be more trouble than they’re worth.

“Some customers can, quite literally, be more trouble than they’re worth”

Chasing unpaid invoices

If you still haven’t been paid the day after the due date, contact the customer to politely request immediate payment. Never let days (let alone weeks) go by without chasing unpaid invoices, even if it’s something you hate doing or worry that it will upset a customer. Be friendly, but firm. You’re asking for money that is rightfully yours.

Some customers try to delay payment as much as possible, which can damage your cashflow significantly, especially if you have more than one late payer. There is also a risk that the more time you give, the more customers will expect, so stick to your agreed credit terms (30 days is standard). Any delays should bean exception.

If a customer asks for more time to pay, you’ve every reason to ask why and when they expect to pay you. If it’s a few days, fine, but several weeks or more is a much bigger ask. Agree a deadline, expect payment then, and (to protect yourself) suspend any further sales or supplies until the bill is paid in full. Good customers will understand. Constant broken promises and not replying to your phone calls and emails are bad signs, which should prompt you to up the ante.

“You can claim interest of 8% over the Bank of England base rate for B2B transactions, as well as debt-recovery costs if a business is late paying you.” 

Charging interest and debt recovery

Bylaw, you can claim interest of 8% over the Bank of England base rate for B2B transactions, as well as debt-recovery costs if a business is late paying you. If a payment date has not been agreed, by law, late payment is 30 days after supply of the invoice or the goods/services (if later). Telling a customer that you plan to add interest to an unpaid invoice can be enough to secure payment.

When dealing with larger amounts, offering to accept instalments can help your customer, while ensuring that you get all or most of your money. Emails and letters are easy to ignore, so always speak to customers when chasing unpaid invoices, following up with an email or letter to confirm if a delay has been agreed.

Invoice factoring can ease your short-term cash flow pressures. Effectively, this is where a bank or other invoice factoring service provider buys your unpaid invoices for less than the stated value and either they pursue payment or you do and pay them when your payment is received.

If all your efforts fail, consider contacting a reputable debt-recovery agency. Some don’t charge if they don’t recover debts. Get references and find out exactly what fees or commission they charge before coming to a decision. If matters get really bad, you can apply to the court to ‘wind up’ a company if it cannot pay its debts.

• This blog was produced for Coconut Accounting Software.

What can be done to save the high street?

Although Covid-19 has made the outlook significantly bleaker, things have been pretty bad for the UK high street for much of the past decade.

According to the Centre for Retail Research (CRR), there are now more than 50,000 fewer shops on our high streets than there were ten years ago. High-profile brands that have gone bust or entered administration this year include Beales, Laura Ashley, Kath Kidston, Oasis, Warehouse, Antler, Victoria’s Secret, Monsoon Accessorize, Oddbins and Go Outdoors.

They follow last year’s major high-street casualties, which include Debenhams, Jamie’s Italian, Patisserie Valerie, Jessops, Mamas and Papas, Mothercare, Thomas Cook, Pretty Green, Jack Wills, L.K. Bennet, Clintons and Links of London. Thankfully, some were saved by acquisition, safeguarding many jobs, but many other retailers haven’t been so lucky. 

Some sources report that visitor numbers to Britain’s high streets have fallen by 20% in the past decade. No wonder so many UK high-street shops are vacant. 

UK retail crisis    

As reported by Retail Gazette, UK high street footfall has fallen by 10% in past seven years, with so many of us now shopping online. Some sources report that visitor numbers to Britain’s high streets have fallen by 20% in the past decade. No wonder so many UK high-street shops are vacant. 

According to the CRR, UK retail is in crisis and it’s been caused by high costs created by rent, business rate and wage rises, and low profitability because of squeezed margins and intense price competition, while “low growth in consumer spending since 2015 has meant that growth in online sales has come at the expense of the high street.”

Some predict that coronavirus will “vastly accelerate” the decline of UK high street. The CRR describes the lockdown as yet another hammer blow for the UK retail sector. Alarmingly, it expects another 20,000-plus store closures this year (16,073 closed in 2019), with more than 235,000 UK retail jobs to go in 2020 (more than 140,000 went last year).

So far, so bad – but what’s the solution? What could and should be done to rescue the high street?

Business rate reform

Trade association, the British Retail Consortium (BRC), believes we’re living through a period of “reinvention retail”, not “Armageddon retail” (well it did, before the lockdown). Retail is “experiencing a genuine revolution driven by technological innovation” it observes. 

Online retail will “continue to grow, as retailers invest in new emerging technologies”, it concedes, while “there will be fewer stores and those stores remaining will offer new experiences”. The BRC says the current business rates system is “no longer fit for purpose and requires fundamental reform”. Many small-business owners and their representative organisations wholeheartedly agree.  

“A tax system skewed towards people and property is contributing to store closures and job losses, and stalling the successful reinvention of our high streets,” the BRC says. A reformed business rates and tax system, with more affordable retail space rent would be welcome – but would it be enough?

Experts believe a “Mars Bar approach” is required, so that town centres become places to “work, rest and play”, not just indulge in retail therapy. 

Reinventing the high street

According to SaveTheHighStreet.org (an “industry movement on a mission to ensure diverse and successful high streets, now and for the long term”), customers still want to “buy local”, with online shopping unable to replace “local, human, real-world shopping experiences”. 

It believes that “ways must be found to merge the strengths of local and digital commerce” and calls for the emergence of a “better connected, digitally enabled high street”. Technology could indeed provide high-street shoppers with an experience better tailored to their likely preferences, for example, by remembering your past purchases and (via your mobile phone, before and while in store) drawing your attention to things you’re most likely to want to know about. 

Many experts believe that retail won’t be the focus of the town centres of the future, which need to become social places and community hubs, they say. As reported by BBC News, experts believe a “Mars Bar approach” is required, so that town centres become places to “work, rest and play”, not just indulge in retail therapy. 

Greater authenticity and choice 

And rather than resembling pretty much every other town centre, with the same brands dominating the vista, high street shops must offer more authentic local identity and diversity of choice, if visitors are to be attracted. 

The successful local high-street shops of today and tomorrow must offer things that people can’t buy online – not just products – but also fun events, immersive experiences and even “retailainment”. On a practical level, a small independent food retailer could offer cookery classes or a music retailer could put on in-store gigs. The idea is shoppers get a more enjoyable, rewarding and personalised experience.

Regularly staging events during the day and evening has already drawn more people back into some town centres. And making sure that public spaces are welcoming, attractive and well maintained, with plenty of places to eat and drink, good public transport links and adequate, affordable parking, can ensure that they come back. 

Success can only come if central government, local authorities, landlords and retailers truly work in partnership. Government funding must be matched by private sector investment.

Time for action

In February 2019, the House of Commons Housing, Communities and Local Government Committee published High streets and town centres in 2030, a report summarising the future role of the UK high street. It believes that UK high streets and town centres “can survive, and thrive, by 2030, if they

adapt”. 

The committee envisages “activity-based community gathering places, where retail is a smaller part of a wider range of uses and activities and where green space, leisure, arts and culture and health and social care services combine with housing to create a space based on social and community interactions.” 

However, it believes that success can only come if central government, local authorities, landlords and retailers truly work in partnership. Government funding must be matched by private sector investment, while the government “needs to go further and move faster to level the playing field between online and high-street retailers” when it comes to taxation, with much lower business rates and rent for high-street retailers.  

Doing nothing certainly isn’t an option. As the report warns: “Unless urgent action is taken, we fear that further deterioration, loss of visitors and dereliction may lead to some high streets and town centres disappearing altogether.” Who wants that?  

• Commissioned by the AAT and published originally on the Informi small-business advice blog and website.