Outstanding invoices: what they are and how to get paid

Published Friday 17 April 2026

Table of contents

• What are outstanding invoices?
• What's the difference between outstanding and past due invoices?
• How do unpaid invoices affect your business?
• How to chase late payments
• Understanding your legal rights in the UK
• Tips for avoiding late payments
• FAQs on outstanding invoices

Key takeaways

• Implement a structured, step-by-step approach to chasing late payments, starting with a polite written reminder and escalating through phone calls, late fees, and formal legal action only if earlier steps fail.
• Include clear payment terms, late fee policies, and statutory interest rights in every contract upfront, as clients who understand the consequences of late payment from the start are more likely to pay on time.
• Pause work for any client with unpaid invoices and put this decision in writing, as continuing to deliver services while invoices go unpaid puts your business at serious financial risk.
• Review your outstanding invoices every week so you can spot overdue payments early and follow up quickly, since the longer an invoice stays unpaid, the harder it becomes to collect.

What are outstanding invoices?

An outstanding invoice is a bill you've sent to a customer that hasn't been paid yet. It includes all unpaid invoices, whether the payment deadline has passed or not.

Outstanding invoices are a normal part of business. Recent findings show that 65% of companies on average receive their payments late. They become a problem when customers don't pay on time. This can squeeze your cash flow and make it harder to cover your own costs.

Common reasons invoices stay unpaid:

• Oversight: The customer forgot or lost the invoice.
• Cash flow issues: The customer is waiting for their own payments to come in.
• Disputes and errors: The customer questions the amount or the work delivered, or there are administrative mistakes, which feature in 47% of invoices.
• Administrative delays: The invoice is stuck in an approval process.

Understanding why invoices remain outstanding helps you choose the right approach to get paid faster.

What's the difference between outstanding and past due invoices?

Outstanding invoices are all unpaid bills you've sent to customers, regardless of whether they're due yet. Past due invoices are the subset of outstanding invoices that have exceeded their payment deadline.

Here's how to distinguish between these invoice types:

• Outstanding invoices: Include all unpaid bills (including those still within payment terms).
• Past due invoices: Include only unpaid bills that have exceeded their due date.
• Action required: Past due invoices need immediate collection efforts.

How do unpaid invoices affect your business?

Unpaid invoices directly threaten your business stability by creating a chain reaction across your finances. When customers don't pay, the effects spread quickly.

How unpaid invoices affect your business:

• Cash flow gaps: Delayed payments prevent you from covering operating costs or planning ahead.
• Strained supplier relationships: Late customer payments make it harder to pay your own bills on time, with 48% of companies having withheld payment to suppliers as a result of receiving their own payments late.
• Credit rating damage: Missed payments to suppliers can lead to County Court Judgments (CCJs), which can stay on your credit report for six years.
• Reduced opportunities: Poor credit makes it harder to secure new contracts or financing, and 34% of businesses report that late payments reduce ability to invest.

How to chase late payments

To chase late payments effectively, use a structured approach that escalates from polite reminders to formal action. The eight steps below move from friendly follow-ups to professional enforcement. They help you recover what you're owed while maintaining client relationships where possible.

1. Write a payment request letter or email

A payment request letter is a formal written reminder asking your customer to pay an outstanding invoice. Send one as your first step because most customers pay after a polite prompt, and it creates a paper trail if you need to escalate later.

Why payment request letters work:

• Prompt quick resolution: Most customers pay after the first reminder.
• Maintain professionalism: Assert your rights while preserving the relationship.
• Build legal foundation: Create documentation for potential court action.

Include these elements in your letter:

• Professional greeting: Address the customer by name.
• Invoice details: State the invoice number, due date, and amount owed.
• Payment inquiry: Ask when you can expect payment.
• Terms reminder: Briefly restate your payment terms.

You don't need to repeat what the payment was for. Those details should already be 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 one when your payment request letter gets no response.

Attach the stamped invoice to a follow-up email as a formal reminder. The visual marker makes it clear the payment is now late.

Build invoice reminders into your routine to keep payments on track. You can do this manually each week. Or use automated invoicing software to send reminders until payment arrives. This strategy works well: half of businesses using e-invoicing say it has improved payment times.

3. Send a statement of accounts

A statement of accounts lists all outstanding invoices for a single client in one document. Send one when a customer has multiple unpaid bills, so you can chase everything at once instead of sending separate reminders.

Accounting software can generate this statement automatically. Follow up with a phone call to make sure your client received it and understands the total amount owed.

4. Make the phone call and prepare to negotiate

Phone calls are the most effective collection method because customers can't ignore a direct conversation. Businesses using phone follow-ups report significantly higher payment success rates.

Structure your call this way:

• Reference the debt: State specific invoice numbers and dates after your greeting.
• Ask for a payment date: Request directly when you can expect payment.
• Use strategic silence: Wait for their response, even if the pause feels uncomfortable.
• Secure a commitment: Don't end the call without a specific payment date.

You may need to negotiate. If the invoice is small and the customer can pay soon, consider agreeing to a new date. Pause work until payment arrives.

If you're not comfortable making collection calls, ask your bookkeeper or accountant to help.

5. Charge a late payment fee

A late payment fee is an additional charge you add when customers miss their payment deadline. It encourages clients to pay on time and compensates you for the inconvenience of chasing payment.

Include your late-fee policy in your payment terms before starting work. While 84% of companies have a late penalty clause in their contracts, only 9% actually enforce it. Make sure your policy is clear and actionable. A simple flat fee is easier for customers to understand than a percentage calculation.

Example:

• Due by 1 June: £100
• Due after 1 June: £110

If a customer pays late, let them know you've added the fee. You can offer to waive it if they pay within 48 hours.

6. Cut them off until outstanding invoices are paid

Pausing work protects your business when a customer stops paying or responding. Only continue delivering services to clients who pay for them.

Tell the client clearly that you'll resume work once all outstanding invoices are settled. Put this in writing so there's no confusion about why work has stopped.

7. Hire a debt collector

A debt collection service recovers unpaid invoices on your behalf when your own efforts have failed. Consider hiring one when a customer stops responding to your reminders and calls.

Debt collectors in the UK must follow the law and treat customers fairly. They typically charge a percentage of the recovered amount or a flat fee.

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

8. Call in the lawyers

Legal action becomes an option when debt collectors can't recover your money. Consult a solicitor who specialises in debt recovery to understand your options.

The type of legal action depends on your debtor's business structure:

• Small claims court: Use this for claims up to £10,000 in England and Wales.
• County Court claims: Use this for larger amounts or more complex cases.
• Statutory demands: Use this for debts over £750 owed by companies.

Legal action can be costly and time-consuming, so weigh the debt value against potential legal fees. Your debt collector may have in-house legal experts or can refer you to a specialist.

For more information, check the GOV.UK guidance on making a court claim for money.

Understanding your legal rights in the UK

Knowing your legal rights helps you take action when customers pay late. UK law gives you the right to charge interest and claim compensation on overdue business-to-business invoices. The Late Payment of Commercial Debts (Interest) Act 1998 protects your cash flow when clients pay late.

Statutory interest rate: 8% plus the Bank of England base rate, calculated from the day after the payment deadline.

You can also claim fixed compensation based on the debt amount:

• Debts under £1,000: Claim £40.
• Debts £1,000–£9,999: Claim £70.
• Debts £10,000 or more: Claim £100.

Include these terms in your contract or payment terms upfront. When clients know the consequences of late payment from the start, they're more likely to pay on time.

Tips for avoiding late payments

Preventing late payments is easier than chasing them. The strategies below help you get paid on time, protect your cash flow, and maintain stronger client relationships.

Set time aside to track outstanding invoices

Tracking outstanding invoices weekly helps you spot late payments early and follow up before they become serious problems. Review your accounts receivable regularly to identify which invoices need attention and take action promptly.

FAQs on outstanding invoices

Here are answers to common questions about managing outstanding invoices.

What should I do if a customer disputes an invoice?

Listen to their concerns and review the invoice details together. If there's a genuine error, correct it immediately and send a revised invoice. If the dispute is unfounded, provide clear documentation showing the agreed terms and work completed. Keep all communication professional and documented.

How long should I wait before chasing an overdue invoice?

Send your first reminder on the due date or within a few days after. If there's no response within a week, follow up with a phone call. Don't wait too long to take action, as the longer an invoice remains unpaid, the harder it becomes to collect.

Can I charge interest on late payments in the UK?

Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest at 8% plus the Bank of England base rate on business-to-business invoices. You can also claim fixed compensation ranging from £40 to £100 depending on the debt amount.

Should I stop working for a client with unpaid invoices?

Yes, if invoices remain unpaid despite your collection efforts. Continuing to deliver services while invoices pile up puts your business at risk. Inform the client in writing that you'll resume work once outstanding invoices are settled.