Late payments: what to do when a customer breaks a promise

Suppose your customer promised to pay a £12,000 invoice on Friday, but Monday's bank check shows nothing and their latest email asks for another week. You've already paid your own suppliers, and although the customer is still placing orders, you don't know whether another polite reminder will bring in the money or simply buy them more time. That uncertainty needs resolving before you extend more credit.

The Insolvency Service's new strategy emphasises earlier help for struggling businesses and faster routes through insolvency. Suppliers should take that emphasis on earlier action seriously, while there's still time to limit what they're owed.

A broken payment promise doesn't prove a customer is insolvent, and treating it as proof could damage a valuable relationship. But sending the same automated reminder again leaves the overdue balance and the next order unexamined.

Find out what actually stopped payment

Before calling, pull together the invoice and agreed payment terms, then check whether your team has received a query that never reached whoever does the chasing. A missing purchase order number may need correcting, while a genuine complaint about the work needs someone with authority to resolve it.

On the call, ask what prevented the promised payment and who can authorise it, rather than accepting another vague assurance that accounts are dealing with it or that someone will get back to you. If they say it's been sent, request the payment date and reference, then check your bank before marking the invoice as paid. A remittance advice records what they say they've paid; it isn't confirmation that the money has reached your account.

Where the invoice is disputed, ask the customer to identify the specific issue and the amount affected, so your team can separate that from any balance they accept. You can request payment of the undisputed amount while the query is investigated, without pretending that an unresolved disagreement is simply a collections problem.

An admission that cash is tight is more useful than another promise of Friday, provided the customer will discuss a realistic arrangement. Ask what they can pay now; don't build an agreement around income they merely hope will arrive.

For the hypothetical £12,000 balance, an arrangement could mean £3,000 cleared immediately and £3,000 on each of the following three Fridays, but only if those dates fit the customer's actual cash position. Confirm the amounts and dates in writing, including who will contact whom if a payment is missed. That plan still leaves you exposed to £9,000 after the first payment, so it shouldn't automatically restore the customer's freedom to order on credit.

Set a boundary before you extend more credit

Your risk doesn't end with the overdue invoice. The customer may still be buying more, while your sales team can't see the payment history. In our example, releasing another £8,000 order before any payment arrives would increase the amount at risk from £12,000 to £20,000, assuming the new order is supplied entirely on credit.

Before accepting more work from this customer, consider whether payment upfront or a deposit would make sense, and check your existing contractual commitments before holding back anything you've already agreed to supply. Your salesperson needs that decision too. A credit restriction achieves little if the accounts team applies it to one invoice while someone elsewhere agrees to keep supplying the customer on the usual terms.

Keep a record of promised dates and actual receipts, with one named person responsible for following up when a payment fails to arrive. Automation can flag a failure, but someone still needs to decide what happens next rather than sending another reminder.

Decide when the matter needs outside help, using the customer's behaviour and your exposure rather than a blanket rule that every invoice gets ten reminders. Repeated broken promises, or silence after you've supplied the documents requested, may justify referring an undisputed debt to a commercial recovery specialist for assessment.

Give the specialist the order and invoice records, along with relevant correspondence and details of any dispute, so they can assess the next step without repeating work your team has already done. Ask what they'll charge before authorising any action. If formal insolvency proceedings are involved, seek advice on the applicable process rather than assuming ordinary collection action can continue.

None of this proves a struggling customer will recover, and a useful conversation can't substitute for money in your bank account. Continuing the relationship may make sense if they keep agreements, but repeated failures should mean a firmer limit on credit.

The next £8,000 order shouldn't leave your business simply because nobody told the sales team that Friday's payment failed to arrive.