Late Payment of Commercial Debts
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Why people pay late

There are several reasons to pay late. Whilst we recommend a policy of crediting the first late payment invoice, it is important not to keep crediting late payment invoices. If the first invoice did not resolve a one-off problem then something is wrong. Continually crediting penalties is pointless. If you really want to do this, then simply don't raise the invoices, and accumulate a nice nest egg for when the customer eventually leaves you.

The main reasons for late payment are as follows...


This is where the customer thinks they have paid within terms, and are horrified to find that they have not. It can come from misunderstanding the payment terms (e.g. 30 days, 60 days, etc) or misunderstanding subtleties of the terms (30 calender days or 30 working days) or when payment is considered made (posted within 30 days or it must arrive within 30 days, etc). It could be a misunderstanding of the amount, or who to pay or how to pay.

These issues are normally easily resolved. Invoicing a late payment penalty brings the problem to light quickly and a policy of crediting the first charge means the customer is not penalised. It should be used as an opportunity to resolve the misunderstanding and agree clearly and demonstrably what terms do apply in future. If this is the actual cause of the problem it should go away, and future invoices should be on time.


This can happen where an invoice is misdirected (wrong postal or email address) or payment is sent to the wrong place, etc.

Again, this is a case where the late payment penalty prompts a resolution of an essentially one-off problem. A policy of crediting the first charge means the customer is not penalised, and the problem can be resolved to stop further late payment.

Trying it on

This is where the customer is playing games - e.g. trying to send payment on the last possible day and missing, or finding excuses to delay things.

This usually only happens where the customer does not believe late payment charges will actually be charged (i.e. an idle threat). Sending the late payment invoice makes then realise that you are serious and usually means they will not mess about in future. Again, crediting the first charge avoids upsetting the customer too much. This should be a one off problem, but can happen again if the customer thinks you will always credit the invoices, so it is important not to credit it a second time to ensure that the seriousness of sticking to agreements is impressed on the customer. After all, the customer would be upset if you decided to arbitrarily ignore some aspect of the contract when it affects them.

Bad accounting systems

Some people have accounting processes that take a long time to make payments.

Again, this is a one off problem and the late payment invoice highlights the issue. Crediting the first penalty avoids penalising the customer and more appropriate payment terms can be agreed to avoid future problems.

Some people may know they have bad processes and will just pay the penalties as well!

The problem may be resolved by the customer fixing their payment systems, or perhaps by agreeing terms which the customer can meet. Our experience is that customers with bad payment systems are not actually helped by extending terms though - they simply start the defective payment process later if they have longer to pay, and still pay late!


Some people have a policy of paying suppliers as late as they can get away with.

This is tricky to get around and can keep happening. The main thing is to not keep crediting the charges, so as to ensure the customer realises the penalties are real and must actually be paid. If you keep crediting charges then they will have got away with paying late and will continue to do so. If you really don't want to chase penalties, don't invoice them, just keep a total so you can charge when they eventually leave you.

Going bust

A major reason for a previously good payer to start paying late is that they are having difficulties. In this case crediting the first invoice will not help, but may be polite. It is likely the customer will not be able to pay the penalty invoice either. Good intentions but bad payment record and particularly bounced cheques should always be taken seriously. Don't let it drag on.


We have made a list of excuses that we have encountered, and what they usually mean...