How to chase unpaid invoices

1 February 2023

5 min read

Please be aware that this is a guide only and you should seek specific advice for your business*

Dealing with late payments from customers is a common challenge for every business. In fact, research by Intuit QuickBooks found that the average UK small business is owed around £31,055 in unpaid invoices.

This can have serious consequences for your company's cash flow, which may already have been earmarked for paying employees or suppliers. Not only will you have to spend time juggling your finances – you will need to spend time chasing customers for payment too.

There are a number of simple, practical things you can do as an organisation to prevent unpaid or late payments right from the start.

Preventing late payment

First, check that your own invoices are accurate and sent out in good time. Each time you send an invoice to a customer, ask yourself these questions:

  • Are the invoice dates and due dates clear?
  • Is the description in line with the service or product you provided?
  • Have you detailed the correct amount due?
  • Do you have the correct contact details for your customer's accounts payable department?

Follow up with the customer

You may want to consider a quick call or email follow up to the customer, a couple of days after you have sent the invoice – rather than waiting until it was overdue before discovering they never received it. Contacting the customer in this way could also help you to deal with any queries about the invoice at an early stage and get the payment process moving.

Make payment as simple as possible

Consider whether your chosen method of receiving payment is simple and easy for your customers to use. Enabling customers to pay by electronic transfer or by card may help to speed up the invoicing process so that your business gets paid faster. You could also offer incentives to your customers such as discounts for early payment.

Check before you follow up that there is no chance a payment has been made but is still clearing, and consider removing payment options that add a few days into your cycle.

Effective ways to chase unpaid invoices

If the customer has received an accurate invoice but has failed to make payment on time, there are a number of actions you may wish to take. In the first instance, it is important that you try to open a productive dialogue with the customer to establish if there is a genuine problem with payment and to see how you can find a resolution.

For example, if your customer is facing financial hardship and simply can't afford to pay in line with your terms, you may be able to discuss a repayment plan that works for both sides. If the customer has a problem with your product or service, then talking about the problem can also lead to a quicker resolution. Aiming to have a calm and courteous dialogue can often result in improved customer loyalty that will stand your business in good stead for the long term.

Managing consistently late payments

If opening a dialogue with the customer has not resulted in payment or the agreement of a new repayment plan, you may want to consider further measures. Simply chasing for payment every week will be frustrating to all parties, but there are other things you can do to deal with late payments or unpaid invoices.

Charging interest on late payment

As a small business you can charge interest on overdue invoices, up to 8 per cent over the Bank of England base rate, but this must have been disclosed in your terms and conditions. The Small Business Commissioner (SBC), an independent public body set up by Government, also allows you to calculate how much interest and compensation you can charge on your unpaid invoice.

Complaints and legal action

If you have exhausted all other options for chasing late payment, you may decide that you wish to lodge a formal complaint or take legal action. One step could be to check the Prompt Payment Code, a voluntary code of practice for businesses, administered by the SBC. Your customer may have signed up to the code which means they have committed to paying suppliers on time, within agreed terms.

You can then lodge a complaint that the Prompt Payment Code administrators will investigate with the aim of achieving a positive outcome through mediation with both parties. Otherwise, the Prompt Payment Code may determine that the customer's payment practice is non-compliant and they may be removed from the code.

In addition, the SBC can provide free, impartial advice as to whether they can help you chase your outstanding payment. This could include putting you in touch with the relevant body to take a legal complaint forward.

Remember to seek support

Chasing late or unpaid invoices can be extremely stressful for the small business owner. In fact, the Department for Business, Energy & Industrial Strategy calculates that 24% of UK businesses regard late payments as a threat to their survival. It is vital that as the business owner you do not let the subject of overdue payments affect your own mental health. Look to get as much help and support as soon as you can.

Further resources to support you and your business

Chasing unpaid invoices is just one of several things you will need to think about when managing your business finances such as what to look for when opening a business bank account, to keeping on top of your bookkeeping.

At The Co-operative Bank we care about you and your business, which is why we've created a number of these useful guides.

If you'd like to learn more about how to manage cash flow, our guide can provide support.

If you'd like to learn about creating a business continuity plan, you can read our guide here.

If understanding asset management is something you'd like to learn more about, then we’ve created a guide here too.

For more helpful support and resources, our Business Exchange hosts a wide range of content tailored to you and your business.

*While all reasonable care has been taken to ensure that the information provided is correct, no liability is accepted by The Co-operative Bank for any loss or damage caused to any person relying on any statement or omission. This is for information only and should not be relied upon as offering advice for any set of circumstances. This is merely a guide and each business is unique in its requirements. Specific advice should always be sought in each instance.