Faye McDonough

The late payment headache isn’t going away – but we can make it better.

Twelve years ago, I was part of a Project Team tackling the late payment crisis crushing small businesses (👋🏻 to my fellow PACE Alumni).

It’s crazy to think that this headache still persists today, and in many ways, it’s getting worse.

The Scale of the Problem

Did you know? The Federation of Small Businesses (FSB) estimated in 2022 that approximately 2.8 million (52%) UK SMEs experienced late and overdue payments, with an average of £22,000 outstanding per business.

That’s not just a headache – it’s a full-blown migraine for business owners.

Fast forward to 2025, and it feels like Groundhog Day. The same issues persist, despite the government’s 2024 crackdown on late payments; it’s early days and difficult to say whether this will make a real difference.

For context, £22,000 might represent several months of salary, essential equipment upgrades, or the marketing budget that could drive growth. When that money is tied up in unpaid invoices, businesses can’t invest in their future or sometimes even cover their basic operational costs.

What Ten Years of Funding Taught Me

Working for over a decade funding working capital for businesses taught me three crucial lessons:

1. Cash Flow Is Everything

Money tied up in unpaid invoices always means less cash for growth and operations.

I’ve seen profitable businesses struggle to pay suppliers, miss growth opportunities, and even face closure – not because they weren’t successful, but because their cash was locked up in outstanding invoices.

Revenue on paper means nothing if it’s not in your bank account when you need it.

2. Time Kills Recovery Chances

The longer an invoice stays unpaid, the less likely you’ll ever see that money (and the more it hurts).

Fresh invoices have high collection rates. Invoices over 90 days see recovery rates drop significantly. By six months, you’re often looking at debt collection or write-offs.

This isn’t just about the lost money – it’s about the compounding effect on cash flow planning and business confidence.

3. Systematic Follow-Up Is Critical

Failing to follow up on late payments promptly and systematically is one of the most frequent and critical cash flow mistakes.

Many business owners are uncomfortable chasing money – they worry about seeming pushy or damaging client relationships. But in my experience, professional, systematic follow-up actually strengthens business relationships by establishing clear boundaries and expectations.

Your reflection: How comfortable are you with following up on late payments? What makes it feel difficult?

Strategies That Actually Work

But there is hope. Here’s what I’ve seen work time and time again:

Ensure a Structured Accounts Receivable Process

Revenue means nothing until it’s in your bank account.

This means having clear procedures for invoicing, tracking, and following up. It’s not enough to send invoices and hope for the best – you need a system that ensures nothing falls through the cracks.

Send Invoices Immediately

Not at month-end!

The longer you wait to invoice, the longer you wait to get paid. More importantly, immediate invoicing while the work is fresh in everyone’s mind reduces queries and disputes.

Set Crystal-Clear Payment Terms Upfront

Don’t hide payment terms in small font at the bottom of an invoice – build them into your conversations.

Payment terms should be discussed and agreed before work begins, not discovered after it’s completed. Make them part of your standard client onboarding process.

Your reflection: How clearly do you communicate payment expectations before starting work with new clients?

Use Automated Reminders

Trust me, they’re not “pushy.”

Automated systems remove the personal discomfort from chasing payments while ensuring consistency. Most clients appreciate the reminder and professional approach.

Offer Small Early Payment Discounts

1-2% can work wonders for cash flow.

This might seem like giving money away, but improving cash flow often more than compensates for the small discount cost.

Make It Super Easy to Pay

Multiple payment options remove barriers to payment.

Bank transfers, card payments, online payment portals – the easier you make it, the faster you get paid.

The Impact of Small Improvements

Remember that cutting invoice payment time from 60 to 30 days is like giving working capital a 50% boost – without landing a single new customer!

This improvement can transform business operations:

• Better cash flow predictability
• Reduced need for external financing
• More resources available for growth investments
• Lower stress levels for business owners

Your reflection: What would an extra month of improved cash flow mean for your business operations or growth plans?

Questions for Your Own Business

Whether you’re dealing with late payments or want to prevent them:

• How structured is your current invoicing and follow-up process?
• What payment terms do you currently offer, and are they clearly communicated upfront?
• How comfortable are you with systematic follow-up on overdue accounts?
• What payment methods do you currently accept, and could you add more options?
• How would improved cash flow timing change your business operations?

Looking Forward

The late payment crisis affects real people running real businesses. While we wait for systemic change, there are practical steps every business can take to protect their cash flow.

The key is moving from reactive to proactive – building systems that prevent late payment problems rather than just managing them after they occur.

I’m curious: What’s your experience with late payments? Have you tried any of these strategies? What worked (or didn’t)?

My friends in Finance – what are you seeing out there? Are late payments still as big an issue as ever?

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Piggy Bank Photo by Fabian Blank on Unsplash