Can I charge for late invoice payments? A guide for SMEs

• Cash flow challenge: My clients are often slow to pay, and I’m not sure if I can add charges to encourage them to settle invoices on time.

• Perfect for: Small business owners and SMEs dealing with persistent late payers and looking for fair ways to protect their cash flow.

Novuna helps small businesses manage cash flow challenges caused by overdue invoices, either through our award winning in-house funding solutions or by comparing the market to find the best option for you.

We guide you through your choices, help you apply, and ensure you get the right deal to keep your cash flow moving.

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Understanding late payment charges

When customers fail to pay on time, it’s natural to feel frustrated. Adding charges can help encourage faster payment and cover the costs of chasing overdue invoices. In the UK, most businesses can legally add late payment interest and charges if terms are set clearly from the start.

The key is transparency to make sure your invoices and contracts outline payment terms and what will happen if those terms are broken. This not only protects your business legally but also sets expectations with your customers.

How to approach adding late fees

1. Set clear payment terms upfront: Agree on terms before any work begins and include them on all invoices. For example, “Payment due within 30 days. Late payments may incur additional charges.”

2. Communicate with clients before enforcing fees: Sometimes payments are delayed due to admin errors or cash flow issues. A polite reminder can resolve the issue without the need to add charges.

3. Use late payment charges carefully: Adding charges too aggressively can damage customer relationships. Many SMEs use late fees as a last resort, combining them with funding solutions to cover cash flow in the meantime.

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Alternatives to relying on late payment fees

Late fees alone won’t solve cash flow problems if late payments are frequent. Many businesses combine strong credit control with finance options that bridge the gap between sending invoices and getting paid.

• Invoice finance: Release money tied up in unpaid invoices within 24 hours.
• Short-term funding: Quick business loans or revolving credit facilities to cover urgent expenses.
• Merchant cash advance: For businesses with card payments, funding can be linked directly to sales volume.

How Novuna Business Cash Flow can help

At Novuna, we understand that chasing payments can take valuable time away from running your business. Our funding solutions are designed to keep your cash flow healthy, whether or not customers pay late. By working with us, you’ll get fast access to funds, flexible options, and support tailored to your industry.