Outstanding invoices: what they are and how to get paid

Published Monday 29 June 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?
• Warning signs a customer may not pay
• How to chase late payments
• Understanding your legal rights in the UK
• How to prevent late payments
• Using technology to manage outstanding invoices
• Take control of your invoicing with Xero
• FAQs on outstanding invoices

Key takeaways

• Chase late payments with a structured approach, starting with a polite reminder. Escalate through phone calls, late fees, and legal action only when earlier steps fail.
• Use clear payment terms, late fee policies, and statutory interest rights in every contract. Clients who understand the consequences of paying late from the start are more likely to pay on time.
• Prevent overdue invoices by running credit checks, offering multiple payment methods, and setting up automated reminders through accounting software.
• Know the warning signs of a non-paying customer, such as repeated delays, poor communication, and sudden changes in ordering patterns.

What are outstanding invoices?

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

Outstanding invoices are a normal part of business. Research from the Institute of Chartered Accountants in England and Wales (ICAEW) shows 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. The ICAEW found that administrative mistakes 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?

These terms are related but mean different things. Knowing the distinction helps you prioritise your collection efforts.

• Outstanding invoices: All unpaid bills, including those still within payment terms.
• Past due invoices: Only unpaid bills that have exceeded their due date.
• Open invoices: Another term for outstanding invoices, commonly used in accounting software.

Every past due invoice is outstanding, but not every outstanding invoice is past due. Focus your collection efforts on invoices that have crossed the due date.

How do unpaid invoices affect your business?

Unpaid invoices create a chain reaction across your finances. When customers don't pay, the effects spread quickly.

Data from 440,000 UK small businesses shows invoices took an average of 29 days to be paid in early 2026. Payments arrived 8.2 days past the due date on average.

Late payments create these financial pressures:

• Cash flow gaps: Delayed payments prevent you from covering operating costs or planning ahead.
• Strained supplier relationships: The ICAEW found 48% of companies have 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). These can stay on your credit report for six years.
• Reduced opportunities: 34% of businesses report that late payments reduce their ability to invest, per the same research. Poor credit makes it harder to secure new contracts or financing.

Warning signs a customer may not pay

Spotting red flags early helps you protect your business before invoices become overdue. Watch for these patterns in your clients' behaviour.

• History of late payments: A customer who has paid late before is likely to do so again.
• Poor communication: Unanswered emails or calls about payment often signal trouble ahead.
• Sudden changes in orders: A sharp drop or spike in orders can indicate cash flow problems.
• Disputes on every invoice: Frequent challenges to charges may be a delay tactic.
• Requests to extend terms: Asking for longer payment windows could mean the customer is struggling financially.

If you notice several of these signs, consider asking for upfront deposits or shorter payment terms before continuing work.

How to chase late payments

A structured approach works best for recovering overdue invoices. The eight steps below move from friendly follow-ups to formal enforcement.

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. Most customers pay after a polite prompt, and it creates a paper trail if you need to escalate.

Why payment request letters work:

• Resolve issues quickly: Most customers pay after the first reminder.
• Maintain professionalism: Assert your rights while preserving the relationship.
• Build a 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. Send one when your payment request letter gets no response.

Attach the stamped invoice to a follow-up email. 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. The ICAEW also found that 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. This lets you chase everything at once.

Accounting software can generate this statement automatically. Follow up with a phone call to confirm 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. Customers can't ignore a direct conversation.

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 deadline. It encourages clients to pay on time and compensates you for chasing payment.

Include your late-fee policy in your payment terms before starting work. According to the ICAEW, 84% of companies have a late penalty clause in their contracts, but only 9% enforce it. Make sure your policy is clear and actionable.

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.

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. Weigh the debt value against potential legal fees. For more information, check the GOV.UK guidance on making a court claim for money.

Understanding your legal rights in the UK

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.

The statutory interest rate is 8% plus the Bank of England base rate. This is 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 to £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.

The UK government is also strengthening protections for small businesses. The Small Business Protections (Late Payments) Bill was introduced in May 2026. It's the largest reform to late payment rules in over 25 years, proposing stricter reporting requirements and stronger enforcement powers.

How to prevent late payments

Preventing late payments is easier than chasing them. These strategies help you get paid on time and protect your cash flow.

• Set clear payment terms from the start: Spell out your payment deadline, accepted methods, and any late fees in every contract before work begins.
• Run credit checks on new clients: A basic credit check reveals whether a new customer has a history of late payments or financial difficulties.
• Offer multiple payment methods: Accept bank transfers, card payments, and direct debits to remove barriers to payment.
• Use automated invoice reminders: Set up reminders that go out before, on, and after the due date to keep payments on track without manual chasing.
• Request deposits for larger projects: Ask for a deposit or stage payments across milestones to reduce your risk.
• Review your invoices weekly: Track outstanding invoices every week so you can spot overdue payments early and follow up quickly.

Debbie Williams co-owns John Williams Heating Services in Chippenham. As she puts it: "Being paid on time makes a huge difference for a family-run business like ours."

Using technology to manage outstanding invoices

Accounting software takes the manual work out of invoice management. The right tools help you track payments, chase overdue amounts, and spot problems before they grow.

Features that make a difference include invoice tracking dashboards that show which invoices are outstanding, overdue, or paid at a glance. Ageing reports break down unpaid invoices by 30, 60, and 90+ days, so you can focus on the oldest debts first.

Adding a "pay now" button to your invoices lets customers pay instantly by card or direct debit. Integrations with payment providers like GoCardless or Stripe make this straightforward to set up.

Real-time cash flow tools show how unpaid invoices affect your finances. Xero Analytics Plus gives you forecasts so you can plan ahead, even when payments are running late.

Take control of your invoicing with Xero

Xero's automated reminders, online payments, and real-time cash flow tracking help you spend less time chasing invoices. Try Xero for your business and Get one month free.

FAQs on outstanding invoices

These frequently asked questions about outstanding invoices cover timing, rights, and practical next steps.

What should I do if a customer disputes an invoice?

Review the invoice details with them and correct any genuine errors straight away. If the dispute is unfounded, provide documentation of the agreed terms and keep all communication in writing.

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.

Can I charge interest on late payments in the UK?

Yes, you don't need interest terms in your contract to claim statutory interest; it's an automatic right under UK law. Send a separate invoice for the interest and compensation to keep your records clear.

Should I stop working for a client with unpaid invoices?

Yes, if invoices remain unpaid despite follow-up. Pause services, inform the client in writing, and specify that work will resume once the balance is cleared.

How long can an invoice be outstanding?

In England and Wales, you have six years to pursue an unpaid invoice through the courts. There's no informal deadline, but the sooner you follow up, the more likely you are to collect.

Are outstanding invoices assets or liabilities?

Outstanding invoices are assets. They appear as accounts receivable on your balance sheet because they represent money owed to your business.