Is your B2B business struggling with customers not paying their bills? You’re definitely not alone. Research shows that 40% of B2B invoices in the UK are overdue on average at any given time.
Late payment is a growing problem that impacts B2B suppliers in all industries. When your customers are late on their payments, your business bears the impact.
Fortunately, there are many options at your disposal. Below, we’ll cover the best actions you can take to prevent late payments in the first place. We’ll also look at what you can do in case your customer truly defaults on their payment.
Contents
- When is a payment considered late?
- My B2B customer doesn’t pay their bill. What should I do?
- How to prevent late B2B invoice payments
- FAQs about late B2B invoice payments
When is a payment considered late?
Under UK law, customers must pay you within 30 days of receiving either your invoice or the goods/services you’re supplying. This 30-day limit applies to all transactions, unless you have an alternative contract or agreement with your customer.
Payments are considered late if they are still unpaid after 60 days (for B2B transactions) or 30 days if the customer is a public entity.
If you’re working for a B2B supplier, you’ve probably noticed that late payments are on the rise. Currently, the average actual payment time for a B2B invoice in the UK is 52 days, up from 41 days just a couple years ago.
The UK’s slowest paying industries
The government has taken notice of this trend too. Under a new draft proposal, lawmakers are currently debating limiting B2B invoice terms to a maximum of 45 days during the next five years.
How late payments hurt your business
- Reduced cashflow: 41% of UK SMEs say late payments affected their cashflow in the last year. When your customer fails to pay, there’s a good chance you will struggle to pay your own expenses at some point.
- Higher admin workloads: Chasing late payments is time-consuming and frustrating. Government statistics show that the SMEs most affected by late payments devote 86 hours of staff time each year on average to chasing up on their invoices.
- Higher costs: Besides reducing liquidity and running up extra labour, late payments directly impact your bottom line. If your business is in a cash crunch because you’re not getting paid on time, you may run into late fees paying your own creditors. That’s not to mention the high costs of working with a debt collector or solicitor to recover what your customers owe you.
- Strained customer relations: Late payments are harmful to the business relationship, resulting in lost revenue. Your company may have to reduce its service level to a customer that habitually pays late, for example. 15% of B2B businesses say they’ve had to avoid working with certain clients due to a history of unpaid invoices.
- Insolvency risk: In the worst-case scenario, late payments might put your company at risk of insolvency. Government statistics show that 38 businesses in the UK go out of business every day as the result of late payments.
Secure your payments with buy now, pay later (BNPL).
Need help choosing the right BNPL solution?
My B2B customer doesn’t pay their bill. What should I do?
Have you got a B2B customer not paying bills on time? When that happens, it’s important to take the right steps to limit the harm to your business, while also protecting the relationship with your customer.
Once an invoice is past the legal or agreed due date, you could technically immediately take the slow-paying customer to court or start charging them statutory interest (more on that later).
In reality, it’s wise to offer some flexibility. After all, you want to salvage the business relationship, avoid extra costs and, above all, get paid as soon as possible.
That’s why this five-step approach is usually the best way to go:
Step 1. Friendly reminder
Reach out to your contact partner at the company and remind them that the payment is due. Often, this is enough to get things moving.
Step 2. First overdue notice
If you’re still having no luck, send an official payment reminder with a new payment deadline. Unless otherwise agreed with the customer, the new deadline can be set at your discretion. Again though, it’s wise to offer some flexibility here. An additional 7 to 14 days is generally considered fair.
Step 3. Second overdue notice
If the customer still isn’t paying, it’s time to be firmer with them. Send a second overdue notice. At your discretion, you may choose to extend the payment deadline again. You may also add a firm, concrete warning – something along the lines of: ‘To avoid discontinuation of service…’
Step 4. Final warning
You’ve been very flexible up to this point, but enough is enough. If your customer ignores your final warning, you should exercise your right to charge statutory interest. By UK law, you can apply statutory annual interest of 8% on late B2B payments plus the Bank of England base interest rate (bank rate).
Calculate statutory interest using the formula below and add it to a new invoice which you send to the customer.
If you were owed £1,000, you can add 8% annual interest + bank interest (for example, 4%, depending on the Bank of England base rate) = 12% annual interest.
- That means annual interest would be £120 (1000 x 0.12 = 120).
- Now, divide £120 by 365 to calculate the daily interest rate (120 / 365 = 0.33)
- That means you can add an additional 33p per day to your invoice.
- So, if the invoice is now 50 days past the legal 30-day limit (or contractual limit), you can now charge £16.50 in interest (50 x 0.33 = 16.5)
That brings the new invoice amount to £1,016.50.
Step 5. Debt collection and legal action
Still no joy? Unfortunately, your only course of action at that point is to get a debt collection agency and/or solicitor involved.
Tip: Better safe than sorry: From the moment a customer misses their first payment deadline, start keeping a full written record of all correspondence (including phone calls and in-person conversations), in case the situation turns into a legal dispute.
Why are customers not paying invoices on time?
Customers have many reasons for not paying their bills on time. Some of those reasons are completely out of your control, such as:
- Cashflow problems on their end
- Administrative oversights
- Lack of organisation
However, in other cases, your company’s actions also play a role:
- Invoice errors: Always ensure invoice details are correct, and issue invoices promptly to prevent unnecessary delays.
- Disputes: Ensure customer disputes or complaints are handled quickly, so customers do not feel they have grounds to withhold payment.
Tip: 3 ways to avoid late payments: clear communication, credit checks and an easy payment process.
Choose the right BNPL solution for your company’s needs.
How to prevent late B2B invoice payments
Late payments don’t have to put your B2B business in danger. Fortunately, there are many strategic steps you can take to lower the risk.
Improve your invoicing workflow
Use automated invoicing and reminder systems to reduce admin and quickly notify customers when payments are missed. Clear, consistent communication helps keep things on track and establish regular payment cycles. All this makes it easier for customers to live up to their obligations.
Set clear payment terms
State your payment conditions upfront and include them clearly on every invoice. Transparency helps prevent delays and builds trust.
Run credit checks before onboarding
Check the creditworthiness of new customers early, especially in online sales. Fast, reliable checks reduce risk without slowing down the buying process.
Incorporating real-time credit checks into your payment process also helps align your business with the expectations of today’s B2B buyers. They expect an easy payment experience that’s just as transparent and hassle-free as when they’re buying from a B2C company.
Work with a Buy Now, Pay Later partner
The most effective way to protect your business from late or missed payments is to work with a Buy Now, Pay Later (BNPL) partner. You get paid immediately, while your BNPL provider handles the entire payment process, including credit checks, invoicing, dunning and debt collection. That way, you reduce manual workload, maintain a healthy cashflow and stay protected from late payments.
At the same time, you can offer customers more flexibility with payment terms like 30, 60 or 90 days, without taking on the credit risk yourself. It’s a simple way to manage your payments, minimise admin and build stronger, longer-lasting customer relationships.
Stay in control of your B2B payments
Late payments are a growing risk for B2B businesses in the UK. They drain time, strain customer relationships and add unnecessary risk. But with the right processes and partners in place, you can protect your cashflow while giving your customers the flexibility they expect.
If your team is spending too much time chasing unpaid invoices or worrying about payment defaults, it may be time to rethink your approach.
Learn which buy now, pay later (BNPL) solution is the best match for your B2B business.
Frequently asked questions about late B2B payments
Yes. You can charge 8% interest above the Bank of England base rate, plus a fixed late payment fee, even if it’s not stated in your contract.
Set clear payment terms, invoice promptly and run credit checks before accepting new customers. Automation also helps you stay on top of payment deadlines.
Set clear payment terms, invoice promptly and run credit checks before accepting new customers. Automation also helps you stay on top of payment deadlines.
