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Late Payment, Short Payment, Non-Payment - How to Fight Back and Win

Updated on July 15, 2013
Paraglider profile image

Dave has lived and worked in more than 30 countries. Possibly as a result, some of his articles are hard to categorise, like this one...

It's all about Cash-flow

When small companies go to the wall, as often as not the root cause is a cash-flow problem caused by late payment of invoices. Late payment can force a company or sole trader to borrow money merely to survive, or to cancel project work or reinvestment. Late payment introduces uncertainty and makes future planning impossible. Stated simply, late payment is illegal and immoral. It is not something to accept without a fight.

Singing for her supper

So Ellie walked into the Finance Office, sat down cross-legged on the floor and began to sing, loudly. I don't know if she's a good singer, or what repertoire she chose for her recital, but after thirty-five minutes she was still going strong. And after forty-five, she left with her long overdue invoice finally signed for payment.

Ellie's method of securing payment may have been unorthodox, but it worked, on that occasion. However, although it has a funny side, it's hard to imagine the level of frustration, even desperation, that would drive a normally undemonstrative person to such measures. Late, short or non-payment is the bane of the small business, sole trader and contractor community. And let's be very clear about this: however smoothly the defaulting company accountants may dress their message, late, short or non-payment is theft. In extreme cases it can even degenerate to slavery.

For the rest of this article, I'm only going to use the phrase 'late payment', because in my book you do not accept the existence of non-payment or even short payment unless you give up demanding your due remuneration. Let's start with a quick survey:

In your business experience

See results
a fistful of qatari riyals!
a fistful of qatari riyals! | Source

Why do companies pay late?

It is a disheartening experience. You quote for a job, agree terms and conditions, exchange contracts, and on the due date you submit your first invoice. When it falls due for payment, you check your account - nothing. You check daily for a week - still nothing. Disappointment grows to dread as you start wondering if this is going to be one of those jobs, the ones that cost you more than they're worth in stomach acid. Until now, you had a good relationship with your clients. You've delivered professionally and on time. Why are they behaving this way?

It's important to understand something about the inner workings of bigger companies and corporations. Your clients, with whom you made the initial agreement, are on the production side of the business. They genuinely understand and require what you do and would probably pay promptly if they could. They have no interest in destroying the relationship or, ultimately, your business. But the Finance Department is another story altogether.

Finance Department's loyalty is to the Company Cashflow. The company cashflow is a spreadsheet of money-in, money-out and balance. They are doing a good job if the balance is positive and rising. And you don't need to be a maths wizard to see that delaying payments is the easiest way of massaging the balance. It's certainly easier than generating income, something these non-productive people cannot do.

A vicious circle can set in here. If payments are allowed to slip by a month, then the following month's payments must slip too, because to catch up by doing a double payround would sink the ship.

In a downturn, when sales revenues drop, delaying payment is sometimes the only way a company can remain afloat, but you can be sure they won't go public with that information, at least not until it is too late.

It's a jungle. Here's how to survive it.

In a perfect world, companies would pay in full, on time, and everyone would be happy. But until that day comes, providers would do well to adopt defensive practices and procedures, most of which are basic common sense, but only once convinced that they are necessary:

  • Do not start a job without a written agreement of payment terms
  • Include in the above a clear statement of penalties for late payment
  • Send your invoice as early as possible (as per agreed terms)
  • Make sure there are no mistakes in your invoice (excuses for delay!)
  • In a staged job, send regular Statements showing the status of all invoices (paid, current, due, overdue)
  • If payment is late, take it up immediately with your real client. S/he has far more influence with the Finance Department that you do. It is not your business to bother with why payment is late. The why is not important.
  • If your terms say that staged work is conditional on staged payments, stick to them. Even if the client is a nice guy. Make it clear that it is contractual, not personal, and down tools.
  • Learn your rights. In the UK, use the resouces of the Better Payment Practice Group. Elsewhere, find the equivalent service. 

Regional variation?

In the Middle East, late payment is the norm. The situation is so bad that most contractors now insist on a large proportion up front, followed by regular staged payments. They deliberately overcharge in the knowledge that they will never receive the final payment. And most of the staged payments will be short as the paymasters will find some excuse or other to withhold a portion. It's interesting working here, but not for the faint-hearted.

And it was, of course, here that Ellie burst into song.

It would be interesting to find out if the phenomenon is universal (I suspect so) or if there are countries out there where everyone plays by the book. If there are, let me know - I'm already packed!

Thank you for reading!


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    • ltstajul profile image


      7 years ago from gazipur

      nice sir

    • Paraglider profile imageAUTHOR

      Dave McClure 

      8 years ago from Kyle, Scotland

      Hi Paul - Saudi and all the Gulf States are notorious for late payment. Often the only time you'll see the final installment is when they want something else from you!

    • profile image

      paul jacob 

      8 years ago

      I contracted to Hewlett Packard in Saudi. They only ever paid when I escalated through to the CIO of their client. Thinking that I had left the Kingdom they when welshed on the last payment. But im back on another job for the same clinet. Who are paying on time. I triued to escalate through someone else in Hewlett Pacxrd in the UK and guess what...he said oh I have just taken over a job and my first role is to tackle the late payments. So I have an invoice for work carried out in November unpain in Marcg. The annoying thing is I dug them out f the crap with the project and the thanks late payments and then short changed on the last invoice. Im furious.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      Hi Maita - looks like it's the same story more or less everywhere. Pity. A perfect world would be nice :)

    • prettydarkhorse profile image


      9 years ago from US

      hi Dave! my goodness in the Philippines they will pay you after a millenium, no just a joke, but it is really slow, red tape etc!

      Good you have some tips about it, like know your contract specification!

      Good read and have a good day!Maita

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      bgamall - that's one of the deep cynicisms in the system, that the 'reliable' clients, i.e. the ones that will pay eventually, are among the slowest, because they are big enough to play brinkmanship.

    • bgamall profile image

      Gary Anderson 

      9 years ago from Las Vegas, Nevada

      I worked for a county government. Governments are really slow at paying and now California will issue iou's due to their budget crisis!

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      advisor4qb - Quickbooks is good, though I've always used spreadsheets of my own making. The most important thing is to keep on top of what's happening. Another very useful clause to include in your terms and conditions is "no queries on the invoice may be raised after the credit period". That forces the client to check the invoice on receipt or soon after.

    • advisor4qb profile image


      9 years ago from On New Footing

      I agree with Amanda.  I teach bookkeeping, so I have seen quite a few struggling companies with many outstanding invoices.  You'd be surprised how many of these are actually larger corporations. Many seem to feel entitled to delay, simply because they are a "Corporate" account. Many also have quite a labyrinth for small time vendors to go through just to get paid. Once it is all arranged, however, Quickbooks is a great way to track this and print out statements monthly for delinquent customers.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      Hi Christoph - it is particularly bad for those who supply goods as well as services or who have to invest in expensive equipment to provide their service. They are the ones most at risk from late payment. It's easy to see why, in some strata of society, the injured party will just 'send round the boys'.

    • Christoph Reilly profile image

      Christoph Reilly 

      9 years ago from St. Louis

      I have been self-employed for many years, and late payments are always an issue. I read a book many, many years ago called, "Your Check is in the Mail: Spindle, Fold, Mutilate." It showed ways that companies use to delay payment. As you pointed out in the "cash flow" section, this also allows them to keep the money in an interest bearing account for longer, thereby earning more interest on the money (which rightfully, you should be using for interest growth.) In a large corporation, this can net the company hundreds of thousands every year.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      I'm not so sure you can remove competition from evolution, since competition is numbered among the prime movers of evolution. I agree that cooperation is the way to go, or 'conviviality' as Illich used the term. However, while working to this ultimate end (by discussion and writing, the only methods available to the relatively powerless) there is still room for local pragmatism to improve the immediate world incrementally. Otherwise there is the danger of doing nothing because you can't do everything. This hub is pitched at that less than philosophical level, as an intended day to day help for the small business. Meanwhile...

    • profile image


      9 years ago

      No. You share the information with the spademaker over the hill so everyone may have the benefit of your improved shovel.

      Competition is a negative means and obviously doesn't produce a desirable end.

      In order for the human race to continue evolving there will need to be a fundamental paradigm shift regarding our concepts of property and ownership.

      Otherwise, Homo sapiens is just another evolutionary dead-end.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      Iðunn - that is true and it is fundamentally immoral. It mainly tends to happen when the company is big enough to have a finance department that is wholly internal and isolated from customers and suppliers.

      Gypsy Willow - yes, the time wasted can be serious as it prevents productive work, forward planning, etc. Many people just give up, rather than be forced out. But the two are much the same.

      Steve - I think it is important not to take it personally while still insisting on your due. Many small businesses don't realise that they are being forced into the role of lending bankers for the big companies. How many of us started out with that intention?

      CWB - I'm the first to agree that the large scale structure is wholly wrong. But even if your levels 1,2 & 3 were in place, we would still have small concerns supplying large companies, with the potential for abuse. Regarding competition, If I invent a splunkett and set up to sell it, I'm not competing because there were no splunketts before. Bud it I invent a better spade, do I keep it to myself or compete (by default) with the spademaker over the hill?

    • profile image


      9 years ago

      If banks and "economies" were nationalized, it wouldn't be a problem.

      Next level:

      If people hadn't been swallowing the lies of "we must compete to survive" for centuries, it wouldn't be a problem.

      Next level:

      If the profit motive were eliminated, it wouldn't be a problem.

      This is merely a symptom, however severe its effects may be, of a virulent disease.

      If something isn't done to treat the disease itself, instead of taking "medicine" for the symptoms, it WILL be terminal.

      Think me mad if you like, I'm reasonably sure you'd be correct. Nonetheless:

    • Steve Rensch profile image

      Steve Rensch 

      9 years ago

      After reading your Hub, I suspect I have been letting too many people off the hook (at least in my mind), using the recession excuse. I either look at things in a strange way or I'm just plain naïve. It hasn't really occurred to me just how many of these people are doing exactly what they would have done anyway. I always viewed bills as another man trying to feed his family, just like me, and paid them accordingly. But maybe those who felt the same way now feel they have to get cheap for survival. I believe it is this way of doing things that has disappeared so many businesses, including the big ones, and which will disappear the rest who don't get the message of these times. I also think that the recession has, in the short run, armed those factions within companies who want to do business as hard ball. I have a couple suppliers which have always been customer-first businesses, but which now run me around. Same company, but I'm dealing with different people. Again, these companies must correct that imbalance or they too will die.

    • Gypsy Willow profile image

      Gypsy Willow 

      9 years ago from Lake Tahoe Nevada USA , Wales UK and Taupo New Zealand

      Sad situation as it has a knock on effect. My son's business is in dire straights as he has to spend so much time chasing money.

    • profile image


      9 years ago

      we were taught in finance that companies have the policy of doing a cost-benefit analysis of whether it was financially lucrative to pay late or even not at all and it's considered good business. I personally don't approve.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      Pam - for the smaller business or sole trader, it makes a lot of sense to have several clients on the books. Even if it does increase your admin, the way things are these days, you never know which 'safe' client will be next to go belly-up. As work in general moves away from salaried staff towards independent service providers, more and more people are having to understand these mattters. Thanks for the visit :)

    • profile image


      9 years ago

      Here in Michigan lots of auto parts manufacturers will likely go under due to the condition of the auto industry and late (very late) payment. Many already have gone under. When it happens on that scale, it trickles through the entire economy and hurts all except the execs at the very top, and even them eventually.

      In my little writing business I drop clients who show ANY sign of trouble. I didn't at first, and after a few bad experiences I talked with some people here at HP who also write for money, and every one of them said, "Get out at the first whiff of trouble and get a new client." That was good advice. I almost never have this problem now, and when I do, I get my money and don't work for that person anymore.

      I also spell out exactly what I will provide, when it is due, and when the payment is due for every single client, and I no longer take big projects without some kind of advance.

      Great topic and good advice. Thanks.

    • Paraglider profile imageAUTHOR

      Dave McClure 

      9 years ago from Kyle, Scotland

      Amanda - that is true, but I think a lot of companies are using the recession as an excuse for inethical behaviour. I notice that people who deal only with the numbers, not with the humans, often take no responsibility for the consequences of their (in)actions. It's a messy world.

      Melody - It is difficult. Many small business people don't like having to become their own invoice chasers. But these days there's little choice.

    • Melody Lagrimas profile image

      Melody Lagrimas 

      9 years ago from Philippines

      Late payment is indeed a very difficult issue to deal with. Thaks for this very helpful hub.

    • Amanda Severn profile image

      Amanda Severn 

      9 years ago from UK

      Late payments can sink small companies, I have two good friends who ended up bankrupt through this exact issue. Unfortunately, when recession bites the whole chain of debt begins to look like rush hour on the M25. Everything moves very slowly and there's a lot of anger and frustration in the process!


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