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Payment terms and late invoices: how to get paid on time

Payments & Invoices

Payment terms and late invoices: how to get paid on time

Updated: 13 November 2022

For small business owners, getting invoices or other debts paid can be crucial to your success. One of the tools in your arsenal that you can use to keep payments coming in on time are your payment terms — but what are they and what should you include? Here we go into detail on payment terms, as well as looking at the steps you can take if all else fails and you need to chase a late payment.

What are invoice payment terms?

Your invoice payment terms state your payment expectations and can include things such as:

  • Your accepted forms of payment (bank transfers, credit cards, etc)
  • The currency you wish to be paid in (especially important if you work with clients in multiple countries)
  • Any late payment penalties or upfront payment discounts you offer

However, the one that’s most important to getting paid on time is your due date. 30 days used to be the standard, but that’s starting to shift. Now that most invoices are sent electronically and payments tend to be made online, you could choose to set your payment due date to be as little as a week — unless you agree to a later date at the request of the client.

Why are invoice payment terms important?

Late payments are the bane of business owners. They can impact your cash flow and leave you feeling stressed and anxious about making your own payments on time. It’s such a pervasive problem in the UK that almost 30% of business owners have seen late payment of invoices in the past 3 months, and 8% said late payments were threatening the viability of their business.

To ensure the best chance of getting paid within a reasonable window, it’s essential to explicitly state when and how customers should pay you, and make it a contractual element of your invoice.

What should I include in my invoice payment terms?

Any contract you draw up should include your payment terms. In addition, you’ll also want to make sure they’re clearly visible on every invoice you send out. We’ve already mentioned some of the most important payment terms above, but let’s take a look at each in a bit more detail.

The invoice due date

While some people choose to use a standard invoice due date (just listing the date you expect payment by), you can also use ‘net days’ to measure your invoice due date. ‘Net days’ outline when payment is due following the delivery of services or goods. Some typical examples include net 10 (10 days after invoice date), net 15 (15 days after invoice date) and net 30 (30 days after invoice date), but you’re free to set these as you choose.

You can also request PIA or ‘payment in advance’, which means you’re requesting upfront payment before you do the work or deliver the goods. 

The payment method and account details

These days, there are a number of different payment options available, so if you’d like to receive payment in a specific way, you’ll want to state this in your payment terms. Your payment options can include:

  • Direct debit
  • Bank transfer
  • Credit card payment
  • Digital wallet

In addition, depending on the payment method you’re requesting, you’ll also need to make sure your account details are clearly visible on your payment terms and invoices. This ensures clients stick to your preferred payment method, unless they make an agreement with you beforehand.

The currency you want to be paid in

If you work with clients in other countries, another important payment term to outline is the currency you want to be paid in. For businesses in the UK, this will be Pounds Sterling.

Even if you don’t trade outside of the UK, it can still be worth having these in your payment terms and invoices as standard, just in case you end up expanding your operations at some point.

Other payment conditions

Late payment fees

You may want to also include late payment fees, since in the UK, you’re legally allowed to charge B2B customers for overdue invoices. These are essentially interest charges on the debt they owe you. You can charge them as soon as your invoice passes its due date — however if you don’t agree on a due date, the invoice is considered overdue after 30 days.

You can use an interest calculator, like this one, to calculate the interest on your unpaid invoice and charge the correct fees.

Upfront payment discounts

To incentivise your clients to pay upfront, you could choose to offer a discount on any upfront payments made. Typical discounts can be 5%, 10% or 20%, but this is entirely up to your discretion.

You can also offer discounts for early repayment as well as upfront payments. You could write this as ‘5% 10, net 15’ for example, which would mean you were offering a 5% discount if paid in full within 10 days of the goods or services being delivered. If your client takes longer than 10 days to pay, then they simply don’t get the discount.

What steps can I take?

If all else fails, and you still don’t get paid on time, there are some steps you can take that don’t require big legal teams.

Take out additional finance to bridge your cash flow gap

If your late payments are beginning to pile up, it might be time to consider taking out business finance to smooth out your cash flow. While not the preferred solution to the problem, it at least ensures that you can make your own payments on time — and it’s one of the most popular reasons that business owners take finance.

There are a couple of different options you could consider. You could borrow a healthy lump sum of money in one hit with a Funding Circle business loan and, with fixed rates for up to 6 years, it could be cheaper than using a credit card. Or, if you want to handle business costs as they come up, you could use a line of credit, such as FlexiPay. It lets you spread the cost over 3 months, without paying any interest — you simply pay a flat 3% fee on each business cost.

A demand letter

You’ve tried chasing them by phone and email but it’s looking like they still won’t pay. At this point, you might consider sending a demand letter. This is a formal letter detailing exactly what is owed and the actions you’ll take if it’s not paid. 

Depending on your relationship with the debtor (the person or body that owes you money), you may want to use a more friendly approach to begin with. If that’s not necessary or the claim is urgent, you may want to proceed straight to a letter before action. 

A letter before action

You’ve sent a demand letter and not heard back. It may now be time to consider using the small claims court. Before doing so, you need to send them a letter before action. This details the claim and states you’ll proceed to the small claims court if it’s not paid. 

You can find templates for demand letters and letters before action at sites like, where you can get a free trial.

Go to the small claims court

The small claims court is available for claims up to £10,000. Once you submit your claim, it may go to a trial if the debtor submits a defence. If no defence is submitted, or the defence has no real prospect of winning, a judge may rule on it without going to trial. You can download an overview of how the process works here:

13/11/22: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.

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