Getting Paid on Time: A Credit Control System for UK Small Businesses
Late payment is the biggest cash flow killer for UK SMEs. A step-by-step credit control process, statutory interest rights, and the terms that get invoices paid without damaging client relationships.
Late payment is the quiet killer of otherwise healthy UK businesses. Profit sits in the accounts, the work is delivered, and the bank balance still cannot cover payroll. Most owners treat chasing as an unpleasant afterthought. Treating it as a system instead usually pulls weeks out of the average collection period within a quarter.
Measure before you fix
Two numbers tell you whether you have a problem.
Debtor days: (trade debtors ÷ annual sales including VAT) × 365. This is the average number of days between invoicing and getting paid. If your terms are 30 days and debtor days is 58, you are financing your customers for nearly a month.
Aged debt concentration: what proportion of your outstanding balance sits over 60 days, and how much of it belongs to a single customer. Concentration is the risk that turns a slow payer into a bad debt.
Track both monthly. Improvement is only visible if you have a baseline.
Set terms that give you leverage
Most invoices are late because the paperwork made lateness costless.
- State payment terms on the quote, the contract and the invoice — the same terms in all three places.
- Use a specific due date, not "30 days". "Payable by 31 August 2026" is harder to reinterpret.
- Take deposits on new clients and larger projects. 30 to 50 percent up front removes most of the exposure.
- For ongoing work, invoice monthly in advance or on milestones rather than at the end.
- Set up direct debit for recurring clients. It changes the default from "will pay when chased" to "will pay unless cancelled".
- Run a basic credit check before extending meaningful credit to a new business customer, and set an internal credit limit.
The chase sequence
Consistency matters more than tone. Automate what you can and follow the same schedule for everyone.
- 7 days before due date: a short, friendly reminder confirming the amount, due date and bank details. This catches invoices lost in an approval queue.
- Day 1 after due date: a same-day email. Nothing signals "this business is relaxed about payment" more clearly than silence in the first week.
- Day 7: a phone call, not an email. Ask a direct question: has the invoice been approved for payment, and what date is it scheduled for?
- Day 14: a formal email restating the debt, referencing your terms and stating that statutory interest and compensation will be applied.
- Day 30: a letter before action, giving a clear deadline and naming the next step.
- Day 45: escalate — a small claim, a collections agency, or a solicitor's letter, depending on the value.
Always send invoices to the person who processes payments, not only your day-to-day contact, and get a purchase order number where the customer's system requires one. A large share of "late" invoices are simply sitting unapproved.
Your statutory rights
For business-to-business transactions in the UK, you have a statutory right to claim interest and compensation on late commercial debts. Interest runs at 8 percent above the Bank of England base rate, and you can add fixed compensation of £40, £70 or £100 per invoice depending on the debt size, plus reasonable recovery costs.
Where no terms are agreed, payment is due within 30 days of delivery or invoice, whichever is later. You do not have to enforce these rights on every invoice — but saying you are entitled to them, in writing, changes how a payment run is prioritised.
Handling the relationship
Chasing does not have to be adversarial. Two habits keep it civil:
Separate the roles. Where possible, the person who delivers the work should not be the person who chases the money. Even a shared inbox called accounts@ creates useful distance.
Offer a route out. If a good customer is genuinely struggling, a written payment plan with dated instalments recovers more than a standoff, and it gives you an early warning if they miss the first one.
When to stop working
Set a rule in advance and apply it without negotiation: no new work starts while an invoice is more than 30 days overdue. The businesses that end up with catastrophic bad debts are almost always the ones that kept delivering, hoping the balance would clear.
The bottom line
Reducing debtor days from 60 to 35 on £400,000 of turnover releases roughly £27,000 of cash — permanently, and without selling anything extra. It costs nothing but a calendar, a template set and the discipline to follow the same sequence every time.
General guidance only, not legal advice. Take advice before starting formal recovery action.