According to a recent survey by Xero, 60% of invoices are paid late, and more than a third are at least two weeks late. Because of unpaid invoices, Fundbox estimates that 79% of business owners cannot pay themselves with any regularity.

But if all invoices were paid on time, the economy could add a whopping 2.1 million jobs! Clearly, late invoices are a huge problem not only for small businesses, but also for the economy at large.

Business owners have to toe a fine line between collecting funds owed without alienating their customers or turning to something like invoice financing. Read on for some helpful tips on how to walk this delicate line.

1. Format your invoice properly

Perhaps this goes without saying—but be absolutely clear about payment deadlines when you onboard a new client. Make sure your payment terms are easy to see and not hiding in fine print. This way, your client can’t pretend that your payment terms were unclear.

That’s why it’s also best to have a consistent timeline for payment, which is why Net-30 payment terms are so common. Once you have a payment timeline, try not to change it on a whim, or at least without prior notice. That way, repeat clients won’t be in for any surprises.

2. Make sure you have late payment terms in writing

In late 2016, the New York City Council passed the Freelance Isn’t Free Act, which offered wage theft protection to freelancers and the self-get paid on timeemployed—the first of its kind in the nation. Though this legislation is geared towards freelancers, such as graphic designers, writers, and others, all business owners can learn from its requirements.

Namely, you absolutely need to have written contracts. It doesn’t matter if you’re doing business with a friend or relative. Having a client sign a contract never hurts the client, but not having a client sign on the dotted line always hurts the business owner.

Make sure you always have late payment clauses and penalties outlined clearly beforehand, so all parties know what’s in store should there be a payment dispute.

3. Charge interest on unpaid invoices

One good way to discourage late payment is to charge interest on delinquent invoices. Charging interest is a standard practice, and goes a long way towards deterring clients from paying late.

More importantly, should a client default on an invoice, forcing you to the negotiating table, interest on an invoice can be easily waived. This can serve as a valuable (and free) concession.

The downside to this approach is that the calculation method can be complex, and at times, opaque..

4. Add discounts for early payment

Conversely, it may be a good idea to offer discounts to clients who pay early. In fact, it may be prudent to set both both an early payment discount and an interest penalty.

Alternatively, if you’re feeling generous (and your business can afford it), it may be a good idea to set the discount at a higher rate than the interest penalty. Either way, this slight tweak gives your clients a very compelling reason to get payment in early.

Go straight to the source

Big companies move slowly, and there are many layers of approval. If you’re invoicing a large organization, cut out the middlemen. Make sure you’re submitting invoices to whoever’s in charge of accounts payable—usually the comptroller or accountant.

Your point of contact will usually CC this person on your invoices, but just in case they don’t, make sure you ask to be put in touch.

If at first you don’t succeed

If and when you find yourself having to collect a late invoice, know that you’re not the only business owner dealing with late payments. All business owners have gone through this gauntlet. Everyone wants services and products as soon as possible, but wants to pay as late as possible.

Hopefully, with these tactics, you’ll be able to even the odds and get the payment you deserve.


Meredith Wood is the Head of Content and Editor-in-Chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more.