How to chase unpaid invoices: 8 ways to get paid faster

Published Monday 30 March 2026

Table of contents

• What is an unpaid invoice?
• How do unpaid invoices affect your business?
• How to chase late payments
• When you still don't receive payment
• Tips for avoiding late payments
• Download Xero's free invoice template
• Streamline your invoicing with Xero
• FAQs on unpaid invoices

Key takeaways

• Send a polite payment request letter or email as soon as an invoice becomes overdue, as about 45% of small and medium-sized enterprises experience late payments and a simple reminder is often enough to prompt payment.
• Implement an escalating collection strategy that progresses from gentle reminders to phone calls, late fees, cutting off services, debt collectors, and finally legal action if other methods fail.
• Protect your cash flow by requesting partial payment upfront and pausing all work until outstanding invoices are paid in full, as continuing to deliver services to non-paying clients puts your business at risk.
• Use automated invoicing software to send payment reminders and track outstanding invoices regularly, which saves time and helps prevent late payments by prompting customers before invoices become overdue.

What is an unpaid invoice?

An unpaid invoice is a bill you've sent to a customer that hasn't been paid yet. This includes invoices that are still within the payment window and those that have passed the due date.

Most businesses set payment terms of 30, 60, or 90 days. An invoice becomes a concern when it passes the agreed payment date with no response from the customer.

Unpaid versus overdue versus past due: what's the difference?

Understanding these terms helps you communicate clearly with clients and prioritise your follow-up:

• Outstanding invoice: Any invoice that has been issued but not yet paid, whether still within the payment window or past the due date
• Past due invoice: An invoice that has not been paid by the agreed due date. Past due invoices are a subset of outstanding invoices and require immediate attention
• Overdue invoice: Another term for past due invoice, often used interchangeably

How do unpaid invoices affect your business?

Unpaid invoices disrupt your cash flow, and the consequences can be severe. European Commission (EC) estimates indicate that one in four bankruptcies in Europe could be due to invoices not being paid on time. When payments arrive late or not at all, you may struggle to cover essential operating costs like rent, supplies, and payroll.

Late payments also make financial planning difficult. If you can't predict when money will arrive, you can't confidently invest in growth or manage day-to-day expenses.

Unpaid invoices create a ripple effect across your business:

• Supplier relationships suffer: If you haven't been paid, you can't pay your suppliers on time. This ripple effect can be devastating; for example, following the collapse of the major contractor Carillion, the number of construction firms entering insolvency increased by 6% in the UK.
• Credit rating drops: Late payments to your own creditors can damage your credit score, and research shows that late payments received by small and medium-sized enterprises (SMEs) are associated with a 2% higher risk of credit constraint.
• Future work becomes harder to secure: A poor payment history may cause clients and partners to hesitate before working with you

Successfully invoicing and managing unpaid invoices is crucial to sustain your business's long-term financial health.

How to chase late payments

Here are eight proven steps to collect payment, from gentle reminders to legal action.

1. Write a payment request letter or email

About 45% of SMEs report experiencing late payments, so send a polite payment request as soon as you notice the invoice is overdue. In most cases, a simple reminder is enough to prompt payment.

If the late payment is intentional, your request letter also creates a paper trail for any escalation steps you may need to take later.

Why you need a payment request letter

Act quickly and professionally to:

• avoid further delays
• check whether the late payment was an honest mistake
• increase your chances of getting paid

How to structure your payment request letter

Keep your payment request brief and professional. Include these key elements:

• Greeting: Start with a friendly, professional opening
• Invoice details: Reference the invoice number, due date, and amount owed
• Payment request: Politely ask when you can expect payment
• Payment terms: Include a brief reminder of your standard terms

You don't need to describe the work completed. Those details should already appear on the original invoice.

2. Send an overdue invoice

An overdue invoice is your original invoice marked with an "overdue" stamp to signal urgency. Send this if your initial payment request doesn't get a response.

Attach the stamped invoice to a follow-up email as a formal reminder. This escalates the request without being confrontational.

Set up an invoice reminder schedule to follow up on late payments promptly. You have two options:

• Manual tracking: Add reminder dates to your calendar and send follow-ups yourself
• Automated reminders: Use invoicing software to send payment reminders automatically until payment is received

3. Send a statement of accounts

A statement of accounts summarises all outstanding payments from a single client in one document. This is useful when you have multiple unpaid invoices with the same customer.

Sending a statement won't necessarily speed up payment on its own, but it streamlines your admin by letting you chase multiple invoices at once. Follow up with a phone call to make sure they've received it. Accounting software can help you generate these statements automatically.

4. Make the phone call and prepare to negotiate

Phone calls are harder to ignore than emails. If your written reminders haven't worked, calling your client directly often gets better results.

Have a loose structure in mind so the conversation stays focused and productive:

1. Reference the invoice: After initial greetings, mention the unpaid invoices by number and date
2. Request a payment date: Politely ask when you can expect payment
3. Wait for their response: Stay silent to encourage them to commit to a date
4. Confirm before ending: Stay on the call until they've provided a specific payment date

Negotiate payment terms when needed. For smaller amounts, you might agree to extend the payment date on the condition that you won't complete any further work until the invoice is paid.

If you're uncomfortable negotiating payment terms yourself, ask your bookkeeper or accountant to handle the conversation on your behalf. Having a third party manage the discussion can feel less confrontational and may help preserve the client relationship.

5. Charge a late payment fee

A late payment fee is an additional charge applied when invoices aren't paid by the due date. This gives clients an incentive to pay on time.

To use late fees, you must communicate your policy upfront in your payment terms before starting work.

Keep your late fee simple. Rather than calculating a percentage, add a flat fee that's easy for customers to understand:

• Total due by 1 June: £100
• Total due after 1 June: £110

Clear, straightforward fees motivate customers to pay on time. If the customer misses the deadline, notify them that the late fee has been applied. To maintain goodwill, consider offering to waive the fee if they pay within 48 hours.

6. Cut them off until outstanding invoices are paid

Protect your business by pausing work until payment is received. Continuing to deliver services to someone who won't pay puts your own business at risk.

Inform the client clearly: no further work until all outstanding invoices are paid in full. Protecting your cash flow takes priority, and this approach often leads to resolution or frees you to work with clients who value your services.

7. Hire a debt collector

A debt collection service pursues payment on your behalf when a customer stops cooperating. This is a common step after other collection methods have failed.

A debt collector can be effective when you need professional support to recover payment.

• Typical fees: 5% to 25% of the amount collected
• Cost recovery: Under UK law, you can pass collection costs onto the debtor, which may make the service free for you

You can find approved debt collection service providers directly through the Xero App Store.

8. Call in the lawyers

Legal action is an option when other collection methods haven't resolved the debt. The type of action you'll need depends on the debtor's business structure, whether they're a sole trader, partnership, or company.

Options may include:

• Small claims court: Recover smaller amounts without full legal proceedings
• Formal legal action: Pursue larger debts or unresponsive debtors

Consult a lawyer who specialises in debt recovery. Your debt collector may have in-house legal expertise or can refer you to someone experienced in invoice disputes.

To find out more about legal action, check the disputes register in your region.

When you still don't receive payment

Even with multiple collection strategies, some invoices remain unpaid. Here's what you can do next:

Write off the unpaid invoice

Write off an unpaid invoice if you use accrual-based accounting. Under this method, you report income when it's invoiced, not when it's received. If you've already paid tax on income you never collected, writing off the invoice lets you claim that tax back.

To write off an invoice, you'll need to prove to your tax authority that it qualifies as a bad debt. Keep records of your correspondence with the client as evidence.

Your approach depends on your accounting method:

• Accrual accounting: Write off the invoice and claim back any tax already paid on that income
• Cash accounting: Exclude the amount from your income statements since you never received it; no write-off is needed

Xero's software can help you track, manage, and write off bad debts in your accounting.

Perform credit checks on prospective clients

Credit checks help you avoid problem clients before you start working with them. A customer's credit score reveals whether they pay bills on time and honour their debts.

A positive score suggests they'll pay you promptly with minimal chasing. Consider running credit checks on new clients, especially for large projects or ongoing contracts.

Tips for avoiding late payments

Getting paid on time is better than chasing late payments. These strategies can help you avoid unpaid invoices in the first place.

Set time aside to track outstanding invoices

Review your invoices regularly to spot overdue payments early. Prompt reminders lead to faster payment, better cash flow, and stronger client relationships.

Take partial payment upfront

Request partial payment upfront to reduce your risk. This could be a deposit to cover core costs or a percentage of the total fee.

Upfront payments offer two benefits:

• Risk reduction: You can gauge whether a client intends to pay before completing the full project
• Cash flow improvement: You can receive funds immediately rather than waiting for the entire payment at the end

Offer payment plans to clients

A payment plan lets clients pay in instalments rather than all at once. This works well for large invoices or long-term projects.

You can structure payment plans in two ways:

• Milestone-based: Tie payments to project phases, such as 25% upfront, 25% at the halfway point, and 50% on completion
• Recovery-based: Break a completed invoice into manageable monthly instalments when a client is struggling to pay

Payment plans strengthen client relationships, improve cash flow for both parties, and help you collect revenue before invoices become overdue.

Use accounting software like Xero

Accounting software automates invoice reminders so you don't have to chase payments manually. Xero can send invoices and follow-up emails on your behalf, saving you time and reducing stress.

Automated reminders help prevent late payments by prompting customers before invoices become overdue.

Download Xero's free invoice template

With Xero's invoice template you can create and send invoices effortlessly. Remember to set early payment dates to help you get paid faster, and with Xero's live payment times you can track how long it takes for your clients to make payments.

Download Xero's free invoice template.

Streamline your invoicing with Xero

Managing overdue invoices takes time, and automation can help. Xero's automated invoicing features handle payment reminders for you, so you only need to get personally involved when it's serious.

Xero's invoice management tools integrate with your accounting system to help you track outstanding invoices and reduce late payments. Get one month free and see how Xero helps you get paid faster.

FAQs on unpaid invoices

Here are answers to common questions about managing and collecting unpaid invoices.

What's the difference between an unpaid invoice and an overdue invoice?

An unpaid invoice is any invoice that hasn't been paid yet, including those still within the payment window. An overdue invoice is one that has passed its due date without payment.

How long can an invoice legally go unpaid?

In the UK, you can chase unpaid invoices for up to six years under a simple contract. After this period, under the Limitation Act 1980, the debt becomes statute barred after six years, so act within this timeframe to pursue it through the courts.

What should I say in an overdue invoice email?

Keep it brief and professional. Reference the invoice number and amount, note that payment is overdue, and politely ask when you can expect payment. Keep your first reminder friendly and professional.

Can I charge interest or late fees on unpaid invoices?

Yes, but only if you've included late fee terms in your original payment agreement. In the UK, you can also claim statutory interest on late commercial payments at 8% plus the Bank of England base rate.

When should I hire a debt collector versus taking legal action?

Start with a debt collector for most unpaid invoices. They typically charge 5% to 25% of the amount collected and handle communication on your behalf. Consider legal action for larger amounts where court costs are justified, or when you need additional support beyond debt collection.