How to set payment terms that cut late payments


Most late payment problems are not caused by bad customers. They are caused by payment terms that were never properly set in the first place: terms buried in small print, due dates left vague, and invoices that arrive weeks after the work is done. Here is how to build terms that get you paid on time.

Put your terms on the quote, not just in the small print

Your payment terms should appear on every quote or proposal, in the engagement letter, and again on the invoice. If a customer only discovers your terms when the invoice lands, you have lost your leverage. State the payment period clearly, the due date for each invoice, and what happens if payment is late. This is not about being aggressive. Professional buyers expect clear terms, and many will simply pay to whatever terms you set.

Make the terms easy to find and easy to read. If you send a formal contract or terms of business, ask the customer to confirm acceptance in writing before work starts. That confirmation is your evidence if a dispute ever arises.

Why 7 or 14 days beats 30 for small businesses

Thirty days is the default in British business, but for a small business it is a long time to wait, and a long time for the invoice to drift down the customer's priority list. Shorter terms of 7 or 14 days work better for three reasons. First, the invoice arrives while the work is still fresh in the customer's mind, when they are happiest with what you delivered. Second, a shorter deadline creates gentle urgency; a 30-day invoice feels like it can wait. Third, if a customer is going to be slow, you find out sooner and can chase sooner.

None of this is unfair. Match the term to the relationship: a long-standing reliable customer can keep 30 days if you like, but there is no rule that says every customer gets the same terms. New customers, in particular, are exactly the ones who should start on shorter terms.

Ask for money before and during the job

Deposits and staged payments are the simplest cash-flow protection available. A deposit of 25 to 50 per cent up front commits the customer to the job and covers your early costs. For longer projects, tie payments to milestones: a payment on order, a payment at the halfway point, and the balance on completion. This spreads the risk across the project instead of concentrating it in one invoice at the end.

A deposit request is also a useful early warning system.

A simple payment-terms template you can adapt

Here is a plain example you can paste into your quotes: "Payment terms: 14 days from the date of invoice. A 30 per cent deposit is payable before work begins, with the balance due on completion. We accept bank transfer and card payments. Late payments may incur interest and compensation under the Late Payment of Commercial Debts Act 1998." Adjust the numbers to suit your trade, but keep the structure: period, deposit, methods, and the late-payment consequence.

Know your late-payment rights

Even with good terms, some invoices will run late, so know what the law gives you. Under the Late Payment of Commercial Debts (Interest) Act 1998, if no term is agreed, payment is implied to be due within 30 days, and you can claim statutory interest at 8 per cent above the Bank of England base rate from the day after the due date. You can also claim fixed compensation on top: 40 pounds for debts up to 999.99, 70 pounds for debts between 1,000 and 9,999.99, and 100 pounds for debts of 10,000 or more. You can agree different terms with a customer, but a term that gives the buyer an excessively long period to pay can be challenged as grossly unfair. Knowing these rights changes how you negotiate, and mentioning them on your terms makes them real.

Check credit before you commit

A two-minute credit check on a new customer is one of the highest-value habits in business. For limited companies, the free information on Companies House shows filed accounts, outstanding charges and filing history. For larger jobs, a credit reference agency report is a small cost against a large invoice. Ask trade references too, and actually call them. Set credit limits for new customers and review them as the relationship grows.

Make paying you effortless

Finally, remove every bit of friction from the payment itself. Offer direct debit or a recurring card mandate for regular customers, so payment happens without anyone remembering. Put your bank details, including the correct payment reference, on every invoice. Send invoices by email as PDFs with the total and due date prominent, and follow up with a short reminder a few days before the due date, not just after it. Businesses that monitor their receivables through monthly management reporting spot slow payers early and act while the balance is small. And if the whole credit-control routine is eating your week, handing it to a provider of accounting outsourcing services turns chasing into a managed process instead of a Monday-morning chore.


 

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