Outstanding invoices: What they mean for your business and how to get paid faster

Published Wednesday 26 November 2025

Table of contents

• 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
• When you still don't receive payment
• Tips for avoiding late payments
• Streamline your invoicing with Xero
• FAQs on outstanding invoices

Key takeaways

• Implement a systematic collection process starting with polite payment request letters, followed by overdue invoice stamps, account statements, and direct phone calls to maximize your chances of recovering outstanding payments.

• Protect your cash flow by requesting partial upfront payments before starting work and pausing services for non-paying clients until all outstanding invoices are settled.

• Utilize your legal rights under UK law to charge 8% plus Bank of England base rate interest on overdue business-to-business invoices, along with fixed compensation fees ranging from £40 to £100 depending on debt size.

• Prevent late payments by conducting credit checks on prospective clients, using automated invoicing software to send reminders, and offering structured payment plans for larger projects.

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.

Key differences

• Outstanding invoices: All unpaid bills (including those still within payment terms)
• Past due invoices: 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 create a domino effect that threatens your business stability. Here's how they impact you:

• Cash flow disruption: You can't cover essential operating costs or plan financially when payments are delayed
• Supplier relationships: Late customer payments mean you can't pay your own bills on time
• Credit rating damage: Missed payments to suppliers can lead to County Court Judgments (CCJs), which can stay on your credit report for six years and harm your professional reputation.
• Future work opportunities: Poor credit makes it harder to secure new contracts

Send invoices and manage unpaid invoices to keep your business financially healthy.

How to chase late payments

Follow these steps to effectively chase late payments and get paid faster.

1. Write a payment request letter or email

Start by sending a payment request letter. This often prompts customers to pay and gives you a record if you need to take further action, such as following the pre-action protocol before going to court.

Why payment request letters work:

• Quick resolution: Most customers pay after the first polite reminder
• Professional approach: Maintains relationships while asserting your rights
• Legal foundation: Creates documentation for potential escalation

Structure your payment request letter:

• Greeting: Start with a professional salutation
• Invoice details: Include specific invoice number, due date, and amount
• Payment inquiry: Ask when you can expect payment
• Terms reminder: Briefly restate your payment terms

You don't need to state what the payment was for – those details should already be on the original invoice.

2. Send an overdue invoice

If the request letter doesn't get a response, the next step is to send an overdue invoice.

An overdue invoice is the original invoice with an 'overdue' stamp to show urgency. You can attach this stamped outstanding invoice to a follow-up email to serve as a formal reminder to your customer.

Add invoice reminders to your routine. This helps you follow up on late payments and keeps customers aware of what they owe. You could carry this out manually, or use automated invoicing software to send payment reminders on your behalf until payment is received.

3. Send a statement of accounts

If you have several unpaid invoices with one client, send a statement of accounts that lists all outstanding payments. Accounting software can help to consolidate your unpaid invoices into one document.

This step helps you streamline your admin by chasing multiple unpaid invoices at once. Consider following up with a phone call to notify them of the statement of accounts.

4. Make the phone call and prepare to negotiate

Phone calls are the most effective collection method – customers can't ignore you when speaking directly. Businesses using phone follow-ups report significantly higher payment success rates.

Your phone conversation structure:

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

You may need to negotiate when you get paid. For example, if the invoice is small and they can pay soon, you might agree to a new date but pause work until you receive payment.

Learn which payment negotiation strategy works best. If you’re not comfortable calling, ask your bookkeeper or accountant to help.

5. Charge a late payment fee

A late payment fee encourages clients to pay on time. Make sure you include your late-fee policy in your payment terms before you start work.

Some businesses quote it as a percentage of the original amount due but it's easier to do the maths for the customer and have a single fee to add on. For example:

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

Simple fees motivate customers to pay on time. If they pay late, let them know you’ve added the late fee. You can offer to waive the fee if they pay quickly, for example, within 48 hours.

6. Cut them off until outstanding invoices are paid

If a customer isn’t paying or responding, pause work until you receive payment. Protect your business by only working with clients who pay for your services.

Let the client know you’ll resume work once all outstanding invoices are paid. This helps protect your business.

7. Hire a debt collector

If you’re struggling with unpaid invoices, a debt collection service can help when a customer stops responding. Debt collectors must follow the law and treat customers fairly.

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

8. Call in the lawyers

If a debt collector is unable to resolve your outstanding invoices, consult a lawyer as your next step. The type of legal action depends on whether the debtor is a sole trader, partnership or company. You can also take the client to a small claims court in England and Wales for claims up to £10,000.

Legal action can be complex, so consult a specialist lawyer with experience in invoice collection. Your debt collector may also have in-house legal experts or can refer you to a lawyer.

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

Understanding your legal rights in the UK

In the UK, you have legal rights to help you deal with late payments. The Late Payment of Commercial Debts (Interest) Act 1998 lets you charge interest and claim compensation for overdue invoices from other businesses.

This law allows you to charge statutory interest, which is 8% plus the Bank of England base rate for business-to-business transactions. You can also claim compensation for the cost of recovering the debt. You are entitled to a fixed sum of £40 for debts under £1,000, and up to £100 for debts of £10,000 or more. The amount depends on the size of the debt. Include these terms in your contract or payment terms so clients know what happens if they pay late.

When you still don't receive payment

There are plenty of ways to deal with overdue invoices but sometimes they simply don't work. Here's what you can do:

Write off the unpaid invoice

To write off an invoice, show your local tax authority that the unpaid invoice is a bad debt. To claim VAT relief, wait at least six months from the payment due date. You can use your correspondence with the client as evidence. Xero accounting software helps you track, manage and write off bad debts.

Perform credit checks on prospective clients

Check a client’s credit score before you agree to work with them. A good score shows they pay bills on time and are less likely to miss payments.

Tips for avoiding late payments

Prevention is more effective than collection – avoiding late payments saves time, stress, and maintains better client relationships. Here are proven strategies:

Set time aside to track outstanding invoices

Track outstanding invoices early and send reminders. This helps you get paid faster and build stronger client relationships.

Take partial payment upfront

Partial upfront payments protect you from total loss while improving cash flow. Request deposits before starting work to secure your investment.

Benefits of upfront payments:

• Risk assessment: Tests client commitment to paying
• Cost coverage: Secures money for core project expenses
• Cash flow improvement: Provides immediate working capital
• Loss prevention: Limits exposure if clients don't pay final invoices

Offer payment plans to clients

You can also offer a payment plan so clients pay in instalments instead of all at once. For example, you might ask for 25% upfront, 25% halfway through, and 50% on completion. If a client is struggling to pay after the work is done, offer a plan to break the payment into smaller amounts – for example, over three months.

Payment plans work well for large invoices or long projects. They help you get paid and build stronger client relationships.

Use accounting software like Xero

Xero accounting software automates sending invoices and reminders. This saves you time and helps prevent late payments.

Download Xero's free invoice template

Use Xero’s invoice template to create and send invoices easily. Set early payment dates to get paid faster. Xero’s live payment times let you track how long clients take to pay.

Download Xero's free invoice template.

Streamline your invoicing with Xero

Overdue invoices can be stressful. Xero’s automated invoicing features send reminders and help you collect payments, so you only need to step in when needed.

Xero small business invoice management tools work with your accounting system. They help you track outstanding invoices and reduce overdue payments. Try Xero for free to see how easy managing invoices can be.

FAQs on outstanding invoices

Here are answers to some common questions about managing outstanding invoices.

What's another word for outstanding invoice?

Other terms for an outstanding invoice include 'unpaid invoice' or 'open invoice'. These all refer to an invoice that has been sent but not yet paid. They are slightly different from 'overdue' or 'past due' invoices, which are invoices that have passed their payment due date.

How long should I wait before chasing an outstanding invoice?

Act as soon as an invoice is overdue. Send a polite reminder the day after the due date. You can also send a friendly reminder a few days before the due date.

Can I charge interest on outstanding invoices in the UK?

Yes, for business-to-business transactions, you can charge interest on overdue invoices under the Late Payment of Commercial Debts legislation. Mention this in your payment terms so clients know from the start.

What should I do if a client disputes an outstanding invoice?

If a client disputes an invoice, pause collection and talk to them to understand their concern. Provide any documents they need, such as a signed contract or proof of delivery. Try to resolve the issue quickly.