How to get customers to pay you on time: a credit control routine for small businesses
Late payment is a cash flow problem you can mostly design out. The businesses that get paid on time set terms before the work starts, invoice at once, and follow up on a schedule instead of on a feeling.
In short
- Set payment terms in writing before you start, and state them on every invoice.
- Invoice on the day the work is done, then follow up on a fixed schedule, starting before the due date.
- Deposits and staged billing move the risk off you on large jobs.
- Unpaid invoices still create a VAT bill if you account for VAT on the invoice basis, so late payers cost you twice.
- Debts prescribe, which means become unenforceable, three years after they fall due. Do not wait.
Before you deliver
Most late payment is decided before the invoice exists.
- Check the customer. For larger amounts, ask for references, look at their trading history and start with a smaller order.
- Agree terms in writing. Payment days, deposit, what happens if the invoice is late, and who to send it to. Put them in the quote or contract.
- Include a late-payment clause, such as interest on overdue amounts. It has to be in the agreement to be enforceable.
- Ask for a deposit on custom work or long jobs. A customer who has paid something is more likely to pay the rest.
Invoice so it gets paid
- Send it the day the work is done. Every day of delay moves your payment date.
- Make it easy to process. Correct customer name and reference, a clear description, the due date and your bank details on the first page. A valid tax invoice matters if the customer claims VAT.
- Send it to the person who pays, not only the person who ordered.
- Confirm receipt. A one-line message does it.
A follow-up schedule
Use the same steps every time, so it never depends on your mood.
| When | Action |
|---|---|
| 3 to 5 days before the due date | Friendly reminder with the invoice attached |
| Due date | Confirm that payment is on the way |
| 7 days late | Phone the person who pays, and record what they said |
| 14 days late | Written reminder that refers to your terms and any interest |
| 30 days late | Stop new work or supply until the account is settled |
| 45 to 60 days late | Formal letter of demand, ideally from an attorney |
Structure the deal so late payment is harder
- Stage the billing on large jobs: deposit, milestones, final payment.
- Use debit orders for recurring services.
- Offer a small early-payment discount only if your margin can afford it.
- Limit exposure. Set a credit limit for each customer and stop supplying when it is reached.
The tax cost of late payers
If you account for VAT on the invoice basis, which is the default for most VAT vendors, you owe SARS the VAT on a sale when you invoice it, even if the customer has not paid you. A late payer can mean you fund their VAT out of your own cash. If a debt becomes irrecoverable, there are rules for claiming back VAT you have already paid over. Ask your accountant before you write anything off.
When they still will not pay
- Confirm the debt and the dates, so there is no dispute to hide behind.
- Send a letter of demand stating the amount, the date it was due and a deadline.
- Get legal advice before you sue. The cost of recovery has to be worth the amount owed.
- Watch the clock. Ordinary debts prescribe three years after they fall due, so old debts can become unenforceable.
What to do now
- Print your terms and check they appear on every quote and invoice.
- Run an age analysis: a list of who owes you what and for how long. Start with the oldest.
- Set the follow-up schedule above and put the dates in your diary.
- Ask for deposits on your next three large jobs.
- Set credit limits for your five biggest customers.
Frequently asked questions
Can I charge interest on late payment?
Only if your agreement provides for it, so put it in your terms before you supply.
Should I stop supplying a customer who owes me?
Usually yes, once they are past the agreed limit. Continuing to supply increases the amount you may never recover.
What is an age analysis?
It is a report that lists each customer's outstanding invoices grouped by how overdue they are, for example current, 30 days, 60 days and 90 days or more.
Sources and further reading
- Prescription Act 68 of 1969, Government of South Africa
- Value-Added Tax, South African Revenue Service
This article is general information for South African businesses. It is not tax, legal or financial advice, and it reflects the rules and figures at the date shown above. Tax rules change, so confirm the current position before you act. TBL's practitioners are registered tax practitioners.