Small Business Commissioner
Fair Payment Code

Building Good Payment Practice in Your New Business

When setting up a new business, ensuring financial health is crucial. Ensuring you have good payment practices is a key foundation of a healthy, pro-active and organised business which can minimise late payments and maintain consistent cash flow, allowing you to focus on growth, rather than spending time chasing payment.

1. Payment Terms

  • Define payment terms in advance of commencement of works/supply of goods ensuring these are written into the contract, including agreed timescales on dispute resolution and late payment penalties as per the Late Payment of Commercial Debts Act.
  • Typical payment terms are 30 days from receipt of invoice, but not to exceed 60-day payment terms
  • Use plain, concise language to avoid any misunderstandings

2. Invoice Promptly

  • Send invoices once goods or services are delivered
  • Ensure that your invoices are completed in the correct format, include the purchase order number, VAT if applicable, and ensure you submit to the correct department or payment portal. If unsure, request clear guidance from the supplier. There are multiple payment platforms and correct submission reduces the risk of rejection and payment delays
  • To make it easy to be paid, provide a variety of payment methods, such as bank transfer, credit/debit card, and direct debit and ensure your payment details are up to date
  • Request acknowledgement of receipt of invoices

3. Monitoring Payments

  • You may wish to consider using invoicing software to automate and track payments. There are several providers providing good value options to small businesses
  • Keep a record of all invoices and their payment status. This will assist when completing returns to HMRC or finance institutions when seeking funding

4. Relationship Building to Improve Payment Performance

  • Establish a connection with the finance team engaging with them before payment is due to check payment is on track

5. Late payments – what to do and how to avoid them

  • You may wish to consider credit checks for new customers
  • Upfront and partial payments for staged and large projects to assist with cash flow and mitigate risk
  • Ensure your invoices are completed correctly and submitted through the agreed person/payment portal
  • Make contact as soon as the invoice becomes overdue to establish why payment has not been made, following the supplier’s escalation process
  • If unresolved, submit a separate invoice for late payment invoice and compensation as per the Late Payment of Commercial Debts Act
  • Contact the Office of the Small Business Commissioner who may be able to assist in recovery of late payments and/or late payment interest and compensation monies owed
  • Maintain professionalism in all forms of communications when chasing late payments

6. Ongoing

  • Regularly review your payment processes and adapt as your business and technology evolves

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