Chasing late payments: what is credit control?

Cash flow is how your business brings in and spends money. Positive cash flow allows you to cover overheads, pay suppliers and keeps your small business ticking over.

You work hard to deliver outstanding services or products to your customers. So when invoices aren’t paid on time, it can be frustrating and can seriously impact your company. Unfortunately, late payments are far too common in the UK, with over 50,000 small businesses shutting their doors each year due to late payments.

Research shows that small businesses are likely to be paid 30 days later than bigger companies. Small companies are often paid more than 30 days late, while larger companies typically receive payments on time or only a day late. Yet, small businesses often don’t have the cash reserves to fall back on, so these late payments can have a devastating impact.

Having a robust credit control process in place keeps late payments in check, ensures you follow best practices for getting paid and gives you a paper trail should the worst come to worst and you need to take more drastic measures.

Keep reading to discover:

• Some of the most common reasons for late invoices
• What is credit control and why it matters
• How to chase late invoices
• Next steps for unpaid invoices

Credit control is the process of following up on late invoices or payments that exceed the agreed payment terms. It’s important to include payment terms in your contracts and on your invoices so that you can then follow up once those payments become overdue. We’ll walk you through the standard procedures for chasing late payments and making sure you’re paid for your hard work.

Each year thousands of invoices are paid late, with 62% of small companies experiencing late payments. The situation is so dire that the UK government is actively looking for ways to better support small businesses, including late payment reporting and consultations. The Duty to Report initiative requires large companies to publish their payment terms so small businesses can better identify late payers and put safeguards in place before working with these companies.

It’s important to be aware of some of the reasons invoices are paid late so you can minimise late payments and protect client relationships.

1. Outdated Payment Processes. Long, drawn-out payment processes involving multiple stakeholder sign-off, purchase orders and budgets make it almost impossible for invoices to be paid on time. While you may have little control over your clients’ payment processes, digital technology like Countingup allows you to streamline payment processes with instant invoice creation and other useful features. 
2. Long Payment Terms. Inefficient payment terms cause almost £250 billion in late payments every year. Payment terms, typically included in your contract, explain when you can expect to get paid. Since most invoices aren’t approved till after the payment date, having shorter payment terms ultimately means you’ll get paid quicker (even if the invoices are paid late).
3. Lack of Credit Control. Many small businesses feel ‘awkward’ or ‘rude’ following up on late payments as 77% said they worry about damaging client relationships, and 76% think following up on outstanding invoices will hurt their chances of getting paid at all. Yet, having a robust credit control process in place starts conversations around late payments, reminds customers and positions you as a company that takes its work seriously.

If your invoice hasn’t been paid on time, start by looking at the invoice to make sure you’ve included all the correct information and sent it to the right contact. You want to make sure you’ve included an invoice date, payment amounts, customer details (name, trading name and address) and payment details. The Countingup app makes it easy to create professional invoices on the go that you can send to clients right away. 

Throughout your credit control process, it’s important to document all interactions as this will strengthen your case should you need to collect your payment through legal means. For example, send an email after a phone call to summarise what was said and ask for confirmation.

After your invoice is two days late, send a polite email to ask about the outstanding invoice and when you can expect payment. 

Send another email and ask if there’s a reason they haven’t paid, such as a problem with the work delivered, a question about the amount, etc. 

Call your contact to make sure they’ve received your emails and ask if there’s a problem with the invoice and when you can expect payment. Remember to send an email summary after the call to create a record of what was discussed.

Make another phone call to remind your client of the outstanding debt. Again, ask why the payment is late and when you can expect to receive it. Send an email after the call to create a record of the conversation.

Send a friendly collection letter to your client to explain that the invoice will now start to accrue interest. You can charge a ‘statutory interest’ of 8% plus the Bank of England base rate for B2B transactions unless otherwise agreed in the contract and will need to send a new invoice with the updated payment amount.

Send a final notice letter or another formal collection letter from your company or company’s lawyer that includes the original invoice date, outstanding amount, services provided, contact person and payment terms. Inform your customer that you’ll take legal action or progress to a debt collection agency if payment isn’t received within seven days. 

If your invoice hasn’t been paid by now, you’ll probably need to enlist outside help like invoice factoring, debt collection agencies, or legal action such as small claims court or mediation.

When you sign up for a Countingup business current account, you get free built-in accounting software to help you and your accountant to keep on top of your finances. Create and send professional invoices on the go and receive notifications once you’ve been paid.

We’ve automated the time-consuming aspects of bookkeeping and tax planning so you can focus on running your business. You also receive updates about profit and loss statements, cash flow insights, tax estimates, and instant invoices. 

Keep your finances running like clockwork. Download the Countingup app today.