Profitable businesses still run out of cash when customers pay late. Debtor days, the average number of days it takes customers to pay you, is one of the clearest measures of how well your credit control is working.
How to calculate debtor days
Debtor days = (trade debtors ÷ annual credit sales) × 365
For example, if customers owe you £60,000 and your annual credit sales are £400,000, your debtor days are (60,000 ÷ 400,000) × 365 = about 55 days. If your payment terms are 30 days, customers are paying, on average, more than three weeks late.
1. Agree clear payment terms up front
Put your payment terms in your quote, your contract and every invoice. Confirm who approves and pays invoices at the customer, and ask for a purchase order number if they use one. Many late payments start with an invoice that was never properly approved.
2. Invoice promptly and accurately
The payment clock only starts when the invoice arrives. Invoice as soon as the work is done or goods are delivered, and check the details, including the PO number, the correct contact and your bank details. An invoice with a mistake is an easy reason to delay payment.
3. Make paying easy
Include a payment link or clear bank details on every invoice, and consider card payments or Direct Debit for regular customers. The fewer steps it takes to pay you, the sooner you are paid.
4. Follow a consistent chasing routine
A polite, predictable schedule works better than an occasional angry email. A typical routine:
| When | Action |
|---|---|
| 3 days before due | Friendly reminder with a copy of the invoice |
| Due date | Confirm payment is scheduled |
| 7 days overdue | Statement and follow-up email |
| 14 days overdue | Phone call to the person who pays invoices |
| 30 days overdue | Final notice, then agreed escalation |
5. Know your rights on late payment
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can claim interest on late payments from other businesses at 8% above the Bank of England base rate, plus fixed compensation of £40 for debts under £1,000, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more. Even if you rarely use it, mentioning it in your terms encourages prompt payment.
Review credit limits regularly. Check your aged debtor report every month and set sensible limits for customers who consistently pay late.
How OBE Financial Services can help
We run your credit control in your company's name: reminders, statements and calls on an agreed schedule, with monthly aged debtor reporting so you can see exactly who owes what.
This article is general information for UK businesses, correct at the date of publication. It is not tax or legal advice. Rules and rates change, so check the latest guidance on GOV.UK or speak to us about your circumstances.