What you need to know: tackling late payments

Jonathan Barber, Executive director, Institute of Financial Accountants - Croner-i

Late payments can be a nightmare for any business, but there are ways to keep a grip on cashflow pressures from implementing the 5-15-30 model to better monitoring, segmenting customers and reviewing client contracts, explains Jonathan Barber, executive director of the Institute of Financial Accountants.

One of the most persistent and harmful issues SMEs face in 2025 is late payments. So much so, in fact, that former UK Small Business Commissioner Liz Barclay’s session on late payments at the recent IFA conference was one of the most popular of the day.

Despite various efforts over the years – voluntary codes, awareness campaigns, digital tools – the problem is not going away. If anything, it’s becoming more entrenched, with SMEs and micro-businesses the most vulnerable, despite underpinning the UK economy.

Accountants, whether in-house or in practice, are often the first to raise the red flag. They see when invoices go unpaid for months, manage cashflow gaps, and even advise clients who are forced to take out high interest loans just to cover payroll because a key customer has dragged their feet.

One method to consider suggesting to clients is the 5-15-30 model: remind at five days overdue, escalate at 15, and formally address the issue at 30, even potentially halting services. It might feel like an aggressive approach if it’s something that’s new to you, but in reality, it’s a professional way of holding customers to account.

Here’s six areas where financial accountants can suggest help for SME clients:

1. Improve invoicing processes

• Send invoices promptly: Don’t wait until the end of the month. Invoice immediately after delivery of goods/services.

• Include clear details: Add line items, payment terms (eg, due in 14 days), purchase order numbers, tax breakdowns, and banking details. If you don’t already, use invoice numbering to help with tracking and auditing.

• Set automated reminders: Use tools like Capium, Xero or QuickBooks to email clients three days before, on the due date, and at set intervals after.

  
  

2. Monitor receivables

• Review aged receivables weekly: Highlight 30+, 60+, and 90+ day overdue invoices and assign follow-up actions.

• Segment customers: Track which clients consistently delay and adjust terms or flag them for stricter follow-up.

• Visual dashboards: Set up charts to monitor the percentage of overdue invoices in real time.

• Forecast worst-case scenarios: Model cashflow impacts if certain payments are delayed by 30–60 days.

3. Implement credit controls

• Create a client credit policy: Define who qualifies for credit, how much, and under what conditions. Ensure to conduct credit checks on each client.

• Offer shorter terms to new clients: Start with payment upfront or net 7 and extend terms as trust builds.

• Reassess periodically: Review customer credit limits every 6 to 12 months, especially after missed payments.

4. Enhance collection strategies

• Script follow-ups:

  • Day 1: ‘Just checking the invoice was received...’

  • Day 7: ‘We noticed payment hasn’t arrived; please confirm a payment date.’

  • Day 14+: ‘This invoice is now seriously overdue. Please address it within 3 working days to avoid escalation.’

• Escalation ladder: Internal reminder -> phone call -> senior contact -> final notice -> legal notice

• Log interactions: Use CRM or spreadsheet tracking to note contact dates, promises made, and outcomes.

• Consider partial payment options: In tough situations, negotiate structured payments to recover at least part of the debt.

5. Policy and process development

• Document a clear payment policy: Include expectations, penalties for late payment (eg, 2% interest/month), and payment options.

• Review client contracts: Ensure all contracts specify payment deadlines and penalties in writing.

• Define a collection SOP: Standard operating procedures for who follows up, how often, and when to escalate.

• Assign responsibility: Designate one person in the business (even if part-time) to oversee accounts receivable.

6. Strategic financial advice

• Build cash reserves: Advise saving 1 to 3 months of expenses to absorb payment delays.

• Consider offering early payment discounts: For example, 2% off if paid within 7 days to incentivise fast payment.

• Use invoice financing: Recommend services that pay up to 90% of invoice value upfront, especially if delays are chronic.

• Diversify the customer base: Identify overdependence on any one client (especially slow payers) and suggest marketing efforts to reduce this risk.

However, internal systems can only go so far and this is in fact a systemic problem too, but that should not stop accountants from doing what they can to keep cashflow healthy. Because this issue is not simply operational, it’s ethical.

Late payments undermine trust, skew risk, and weaken the financial fabric of the UK’s vital SME sector. SMEs deserve the respect of being paid on time.

At the IFA, we believe that accountants must continue to be advocates, not only for their clients but also for a healthier, fairer business environment. Tackling late payments and creating a payment culture is one of the ways members can achieve this at an individual level.