Reduce late payments and get paid faster | Xero NZ

Published Thursday 26 February 2026

Table of contents

• Understanding late payments
• Why it's important to minimise late payments
• Common causes of late payments
• How to prevent late payments and get paid faster
• How to write payment reminder emails
• Get paid faster with Xero
• FAQs on reducing late payments

Key takeaways

• Establish clear payment terms upfront by stating specific due dates, accepted payment methods, and late payment fees on every invoice, and discuss these terms with clients before providing goods or services.
• Implement a consistent invoicing schedule by sending invoices immediately after providing goods or services and using automated invoicing tools to maintain regular billing cycles.
• Follow up promptly on overdue payments using a structured approach that includes email reminders a few days before the due date, on the due date, and escalating contact methods like phone calls for payments that are one to two weeks late.
• Use accounting software to automate invoice generation, payment reminders, and tracking to reduce manual work and ensure you never miss following up on outstanding payments.

Understanding late payments

Late payments happen when clients pay after an invoice's due date. They stall your cash flow, making it harder to cover operating expenses and plan ahead. As of December 2025, the non-performing loans ratio for small and medium enterprises (SMEs) was 1.1% of a total $82 billion in loans.

On average, clients take 23 days to pay invoices, running about six days late. See the Xero small business insights stats or learn more about the government's efforts to reduce late payments for small businesses.

Why it's important to minimise late payments

Late payments hurt your business by disrupting the cash you need to operate. When clients pay late, you may struggle to cover:

• operating expenses
• payroll
• loan repayments

This strains your relationships with suppliers, employees, and lenders. Timely payments keep cash flowing so you can pay your bills and plan ahead.

To protect cash flow, understand why clients pay late and how to get paid faster.

Common causes of late payments

Common causes of late payments include unclear terms, inconsistent invoicing, and client cash flow problems. Understanding why clients pay late helps you fix the root issues.

Inconsistent invoicing practices

Inconsistent invoicing makes it hard for clients to pay on time. If you forget to invoice one month and send two the next, your client faces an unexpected double bill.

They might delay payment, request instalments, or ignore the invoice altogether. Some may look for a supplier who invoices more reliably.

Unclear payment terms

Unclear payment terms leave clients guessing when to pay. If your invoice lacks a due date, clients may assume standard Net 30 terms, even if you expect payment on receipt.

That mismatch disrupts your budget and delays your cash flow.

Not following up on your invoice

Not following up signals that payment isn't urgent. Some clients will prioritise other expenses if they don't receive reminders. Without follow-up, invoices get forgotten and payments slip further behind.

Financial difficulties

Financial difficulties cause clients to prioritise their most pressing bills first. Your invoice may fall to the bottom of the list, and repeated late payments can lead to default.

You can't always tell if a client is struggling or simply forgot. Clear payment terms, consistent invoicing, and prompt follow-up help you get paid before problems escalate.

Disputes over goods or services

Disputes over goods or services delay payment. If clients disagree with what's on the invoice, they may hold off paying or refuse altogether. Minimise mistakes and make sure clients understand exactly what they're being billed for.

How to prevent late payments and get paid faster

These five strategies help you prevent late payments and protect your cash flow. The right invoicing tools make them even easier to implement.

Make your payment terms super clear

Clear payment terms help clients pay on time. State your expectations upfront and include them on every invoice:

• set out terms like Net 60, Net 30, or Due on receipt
• list accepted payment methods and how to pay
• outline fees for late payments
• include your refund, return, and cancellation policies

Consider offering discounts for early payment to encourage promptness. Discuss your terms with clients before you provide goods or services.

Invoice promptly and professionally

Invoice promptly to get paid faster. Send invoices immediately after providing goods or services, or even before if possible.

Automate your invoicing or set a regular schedule. Use an invoice template or accounting software that automates invoices to save time.

Follow up on late payments

Follow up promptly when invoices go unpaid. Set up automatic reminders in your invoicing system, or add calendar alerts to follow up manually.

Use multiple channels to increase response rates:

• start with an email reminder
• follow up with a phone call if needed

Don't chase late invoices indefinitely. Take further action, including legal steps as a last resort, if payment doesn't arrive.

Build strong client relationships

Strong client relationships encourage on-time payment. Clients who respect you are more likely to prioritise your invoices.

Build stronger relationships by:

• communicating clearly and openly to build trust
• checking in regularly, not just when invoices are late
• offering loyalty programs to reward repeat business and prompt payment

Use accounting software to track and manage invoices

Accounting software saves time and helps you get paid faster. Invoicing tools like Xero handle the repetitive work so you can focus on your business.

Xero's invoicing features include:

• automated invoice generation and sending
• late payment notifications and automatic reminders
• a dashboard showing paid and outstanding invoices at a glance

Learn more about how Xero generates and sends invoices.

How to write payment reminder emails

A friendly reminder often gets an overdue invoice paid. Writing a clear, professional email helps you get paid while protecting your client relationship.

What to include in your payment reminder

Keep your reminder emails brief and to the point. Make it easy for your client to pay by including all the necessary details:

• the original invoice number
• the total amount due
• the payment due date
• a link to pay online or clear payment instructions

When to send payment reminders

Timing is key. A structured follow-up process keeps you on track without overwhelming your client. Consider a schedule like this:

• a few days before the due date: a gentle heads-up
• on the due date: a simple reminder that payment is due today
• one week after the due date: a firmer follow-up
• two weeks after the due date: a phone call to discuss the overdue payment

Email subject lines that get responses

Make your subject line clear and easy to identify:

• for a gentle reminder: Following up on invoice [Invoice Number]
• for an overdue invoice: Invoice [Invoice Number] is now overdue
• for a final notice: Urgent: Action required for invoice [Invoice Number]

Get paid faster with Xero

Getting paid faster comes down to clear terms, consistent invoicing, and following up promptly. Xero's invoicing tools help you automate these best practices so you spend less time chasing payments.

With customisable invoices featuring professional payment terms and automatic reminders that chase overdue payments for you, you can keep cash flowing into your business. Track who's paid and who hasn't from a single dashboard, and even accept payments directly through your invoices.

Get one month free and see how Xero makes invoicing easier.

FAQs on reducing late payments

Here are answers to some common questions about managing late payments.

What payment terms should I offer clients?

Common terms include 'Due on receipt' for immediate payment, or 'Net 30' for payment within 30 days. Choose terms that support your cash flow while being fair to your clients. Discuss these terms before you start work.

How do I negotiate with a client who can't pay on time?

If a client is struggling, open a conversation. You could offer a payment plan that breaks the total amount into smaller, manageable instalments. This shows goodwill and increases your chances of getting paid.

What are valid reasons clients pay late?

Clients may pay late for many reasons. These can include simple administrative errors like a lost invoice, delayed internal approvals, or genuine cash flow problems on their end. Understanding the reason helps you find the right solution.

When should I take legal action for unpaid invoices?

Legal action should be a last resort after you've sent multiple reminders and tried to contact the client by phone. Consult with a legal professional to understand your options and the costs involved before proceeding.

Can I charge interest or fees on late payments?

You can charge late fees or interest, but you must state this clearly in your payment terms and on your invoice. Make sure your client agrees to these terms before you begin work to ensure they are enforceable.