Research reveals payment problems: here’s how to bring them in to land

We’ve just completed our regular survey of over 1,600 freelancers and small businesses, to find out the main issues that are facing small businesses in 2024. And it showed that one remains a constant - the spectre of late payments. 

So if you’ve ever felt like you’re the only one struggling with the stress of customers paying late, or not paying at all - you’re far from alone. And we’re here to give you a few ideas on how to handle your own late payers. 

Late payments are way beyond an annoyance 

One in four of the business owners who took part in our Small Business Monitor survey have felt their business’s future was in jeopardy because they weren’t paid promptly. And it’s no wonder - late payments have huge knock on effects, damaging your cashflow which can disrupt your planning and, at worst, stop you from being able to pay your suppliers and bills. Almost half of our respondents have had to write off an invoice because of a late or non-paying client and 18% of all surveyed had to write off over £1000 from their accounts. 

The problem is widespread - 71% of business owners have waited more than a month to get paid, with 40% waiting more than three months. There’s even 6% who have waited more than a year for a payment to come through. So, what can you do to inject some urgency into late payers?

Your late payment toolkit

If you’re one of the unlucky many who watch their bank account with dread at the end of the month, which tools do you have to help speed up those payments? 

Payments made simpler

It’s sad but true: the more steps in a process, the less likely people are to complete it. You can use that to your advantage, making payments possible in a couple of clicks using payment links. Connect Tyl, Stripe or PayPal to your FreeAgent account to add a clickable payment button to all your invoices. When it takes seconds to make your payment, your customers have even less of an excuse. 

If you have a repeat customer who struggles to keep on top of their regular payments, they might find it easier to set up a Direct Debit mandate. Our GoCardless integration now lets you set up the same value payment to leave their account on either the invoice or payment date. Then you and your customer can set it and forget it - with the Direct Debit linking to FreeAgent’s recurring invoice feature.  

Tailor-made payment terms

You don’t want to tar your prompt payers with the same brush as those who regularly pay late. Start by using FreeAgent’s late payment Insight to discover your five slowest paying customers. Once you know which ones are likely to be late, you can take action.

You can set shorter payment terms for individual contacts. Maybe your standard payment terms are 30 days, but you have a customer who consistently pays you 10 days late. Shortening your payment terms to 20 days for this contact could help to balance this, giving you a buffer for the likely delay. 

You may also be able to introduce interest charges or fees for overdue invoices. These can be an effective deterrent to any chronic late-payers, introducing a small charge that can quickly add up - especially if they’re delaying payment for months.

Hands-free invoice chasing

So you’ve sent one email, yes. But what about a second email? Some customers need a reminder to spur them into action, and sending these manually takes time you’d rather be spending on your work. 

Leave the invoice-chasing to FreeAgent, with short, customisable emails that send automatically when a payment deadline has passed. You can tweak the timing and wording of the reminders too, so you give some customers a bit more of a grace period - or strike a firmer tone with repeat offenders. On the other hand, you can set up automatic thank you emails once the invoice has been paid - sometimes a bit of positive reinforcement makes all the difference!

The legal route

Taking legal action for an unpaid invoice can feel risky for small businesses, but that doesn’t mean it’s not worth considering. Our study found that 27.5% have wanted to take legal action against a client who didn’t pay, but ultimately didn’t. 

If you’re looking at having to write off a considerable sum you’re owed, you may want to try the small claims track or a debt collection agency. Depending on the amount of money you’re owed, you might be able to go through the entire process yourself, without needing a lawyer. You can find out more in our lawyer’s guide to payment disputes for small businesses.

What is the Prompt Payment Code?

The Prompt Payment Code (PPC) is a voluntary code of practice businesses can sign up to with the Office of the Small Business Commissioner that includes an agreement to pay suppliers on time. As of May 2024, just over 5,000 businesses have signed up and, in our survey, we found that only 14% of business owners were aware of the PPC. The majority of respondents believe it should be made mandatory - either for all businesses or for large businesses. 

You can find out whether any of your customers are signatories of the PPC. Signatories must report annually on their payment performance, showing that they have paid 95% of their invoices within 60 days, or 30 days for small business invoices. 

Your trusty sidekick for tackling late payments

While late payments can be concerning, they’re not so bad when you’ve got backup. While you get on with work, FreeAgent can whirr away in the background - chasing late invoices, flagging frequent culprits and pulling through payment info as soon as it lands in your account. 

Take a 30-day free trial and explore all FreeAgent has to offer.