Cash flow crisis? How to handle late payments legally and effectively

You can find the original article on the Mitchell Charlesworth site here.

A recent report has revealed that UK small businesses are owed on average £21,000 each in unpaid invoices, with a staggering £112 billion outstanding nationwide. If you have ever had to chase a late payment, you’re not alone – 62% of businesses say they are currently waiting on overdue invoices.

Late payments can seriously impact cash flow, disrupt planning, and place added pressure on small business owners, contractors, and freelancers. To help, we’ve put together a step-by-step plan covering how to manage overdue payments, from smart invoicing practices to legal options.

Your 5-step plan to tackle late payments

1. Reinforce the rules

Make sure your invoice template includes clear payment terms, such as due date (e.g. “due within 14 days” or “Net 30”), accepted payment methods, and any late payment fees or early payment discounts. This should save you any hassle down the line.

2. Stay consistent

Follow a structured payment follow-up process to help enforce expectations. For example:

• Day 1: reminder email
• Day 7: follow-up call or second email
• Day 14: formal reminder or Letter Before Action (LBA)

3. Save time with automation

Streamline the process by using automated invoicing software, such as Xero or QuickBooks, which can cut manual admin time by sending reminder emails for you.

These tools can also create, send, and track invoices, manage payments, and generate financial reports, reducing the risk of unpaid invoices slipping through the cracks.

4. Communicate before escalating

It’s helpful to try and resolve the issue directly, including ensuring that your invoice and follow ups have been received, and if so, what the reasons for non-payment are. If appropriate, negotiate a structured payment plan that works for both parties.

Before proceeding to the next step, you should send an LBA, outlining the amount owed and the consequences of non-payment, including potential legal action.

5. Take action

If you aren’t able to resolve the issue and retrieve payments, it may be time to look at legal options. These may include:

• Issuing a Statutory Demand, which is a formal demand for payment.
• Enlisting a debt collection agency, who can chase the debt on your behalf, potentially avoiding the need for further action.
• Submitting a claim through the County Court system.
• Pursuing a County Court Judgment (CCJ), which is a court order registered against the debtor if the prior claim is ignored.
• Each option carries legal and financial implications, so it’s worth getting professional advice.

Need help with cash flow and credit control?

If you are responsible for the day-to-day running of your business, chasing late payments can be time-consuming and a drain on your resources.

Prevention is key, so with structured and defined processes that are clear to all parties, you can reduce risk and protect your cash flow.

At Warr & Co, we work with small business clients to:

• Set up robust invoicing procedures
• Monitor outstanding debts
• Create cashflow plans and forecasting tools

Need tailored support? Contact our team today to book a consultation.