If cash is “oxygen,” credit control is how you keep breathing between invoice and bank. This guide shows UK service-based SMEs (5–30+ staff) how to set payment terms and deposits, and run a chasing rhythm that reduces Days Sales Outstanding (DSO) and improves your cash runway. It’s a practical credit control process UK playbook you can apply this month.
Who this is for: UK service businesses that invoice on credit terms (agencies, consultancies, IT/MSPs, professional services).
Not for: cash-on-delivery micro-sales; jump to your Month-End Reporting Timetable for close and reporting process instead.
1) Get the foundations right: contracts, terms, invoices
a) Put clear payment terms in your engagement letters and proposals.
- Default to 30 days unless your sector demands shorter/longer.
- Add: deposits/stage billing, late-payment clause (interest/comp), PO requirement (if needed), approver contact.
b) Make your invoices bullet-proof.
Include everything HMRC expects on an invoice (unique number, parties, dates, description, amounts, VAT if applicable, total). This reduces disputes and “please resend” delays.
c) Keep VAT-compliant records.
You must keep copies of every VAT invoice you issue/receive, store them so you can find them quickly when asked.
d) Lawful late-payment tools (B2B).
If your contract doesn’t set something else, UK law allows statutory interest at 8% + the Bank of England base rate and a fixed-sum compensation on overdue business-to-business invoices. (There’s an official calculator to work this out.)
Policy watch: For major government contracts, suppliers must show they pay invoices within an average of 45 days from 1 Oct 2025 (95% within 60 days). Expect stronger payment-speed expectations across supply chains.
Related reading: DSO explained (what DSO means, how to calculate and reduce it, with a calculator).
Also see: Core formulas (for AR = DSO × Daily Sales) and your Month-End Reporting Timetable (where AR review sits).
2) Price and billing structure that improves cash (not just revenue)
a) Deposits and stage billing.
- Projects: 25–50% up-front, then milestone billing (e.g., design sign-off, UAT, go-live).
- Retainers: bill in advance (1st of the month) not in arrears.
b) Align revenue to delivery.
Clean milestones + clean invoices = fewer disputes, faster approvals, and a lower DSO.
c) Make it easy to pay.
Add Direct Debit and card links to every invoice. One click beats “I’ll pay later.”
(Your finance SOP should state accepted methods and who can set them up.)
3) Onboard clients like a lender: basic credit check + limits
Treat onboarding as a light credit-risk step:
- Check Companies House for registered details, age, filings and any red flags. It’s free and fast.
- Capture the invoice approver and PO rules.
- Set a credit limit (e.g., one month of fees) and a deposit policy for new clients.
- Document agreed terms and late-payment clause.
4) Invoicing discipline: same day, right data, no batching
- Invoice the same day milestones complete (not “Friday batch”).
- Include the PO, detailed lines, the approver’s name, and the exact due date.
- Send from a consistent email identity (e.g., accounts@…); avoid personal inboxes.
5) The chasing rhythm (the bit that actually gets you paid)
Run a polite, proactive schedule, that starts before the due date. Build this into your SOP and automate where you can.
| When | Message (plain-English) | Goal |
|---|---|---|
| T−3 days | “Friendly reminder, here’s the invoice & PO; reply if anything missing.” | Prevent last-minute surprises |
| Due day | “Just due today, link here if you want to clear it now.” | Nudge same-day payment |
| +3 days | “Checking status, any issues to fix?” | Surface disputes early |
| +7 days | “Overdue, please confirm payment date.” | Get a Promised-to-Pay |
| +14 days | “Escalation to sponsor, interest may apply under UK rules.” | Senior attention |
| +21 days | “Final reminder before credit hold.” | Trigger stop-work decision |
| +30 days | Stop-work (if policy allows) + formal letter | Protect cash & team time |
If your contract is silent, you may add statutory interest (8% + BoE base) and a fixed sum compensation on late B2B invoices; use the official calculator to get the figure right.
Email snippets you can paste:
- Pre-due (T−3):
“Hi [Name], friendly heads-up that INV-[1234] is due on [date]. PO [###] attached, payment link inside. Shout if anything’s missing and we’ll fix today.” - Overdue (+7):
“Hi [Name], INV-[1234], due [date]. Please confirm your Promised-to-Pay date. If helpful, here’s the payment link again. If there’s a snag (PO, approval), tell me now and we’ll sort it.” - Escalation (+14):
“Hi [Name], following up on INV-[1234]. Under our terms (and UK law where contracts are silent) interest/compensation may apply. Copying [Sponsor]. Can you confirm the payment date today?”
6) Disputes playbook (keep goodwill, get cash)
- Acknowledge within 1 business day.
- Categorise: scope/price, PO/approval, delivery timing, quality.
- Propose a fix + confirm revised approval route.
- Partial payment for undisputed portion (don’t wait for perfection).
- Log root cause in your SOP so it doesn’t repeat.
7) Reporting & KPIs you should track every month
- DSO (simple or countback; be consistent).
- AR ageing (0–30 / 31–60 / 61–90 / 90+).
- % invoices sent same day as milestone completion.
- PTP rate (% of overdues with a Promised-to-Pay date).
- Dispute rate (% invoices with a dispute code).
Review these in your Month-End Reporting Timetable meeting, then reflect improvements in your 52-week rolling forecast to show real cash-in timings.
Worked quick wins (90 days)
- Move retainers to in-advance billing; add Direct Debit.
- Introduce 30% deposit on new projects; add milestone billing.
- Implement the chasing rhythm above and a stop-work policy (with director override).
- Clean invoice data (POs, named approver, due date on every PDF/email).
- Add late-payment clause to contracts; reference statutory rights where silent (8% + base, plus fixed comp).
FAQ (plain English)
What’s the difference between Accounts Receivable and Credit Control?
Accounts Receivable (AR) is the balance customers owe you; credit control is the process you run (terms, invoicing, chasing) to turn AR into cash.
Can I legally add interest and fees on late invoices?
Yes for B2B if your contract is silent: 8% + the Bank of England base rate interest, plus fixed compensation.
What must be on my invoice?
Unique number, supplier and customer details, supply and invoice dates, description, amounts, VAT (if applicable), and total.
Do I really need copies of every VAT invoice?
Yes, they’re essential business records and you must keep them.
How do I sanity-check a new client quickly?
Look them up on Companies House (free) for age, filings, officers and any red flags; set a sensible credit limit and take a deposit.
Are UK payment-speed rules changing?
For major government contracts, suppliers must meet an average 45-day payment standard from 1 Oct 2025 (with 95% within 60 days).
What should UK payment terms be for services?
Many UK service SMEs use 30 days as standard; shorten for high-risk clients or new relationships (with deposits), and lengthen only where pricing includes the financing cost.
What is a credit hold policy?
A simple rule that lets you pause work when accounts are overdue beyond a set threshold (e.g., 14 days over terms) until a Promised-to-Pay date is agreed or payment clears. Communicate it early in contracts and apply it consistently.
What to do next
- Book a 20-minute planning call. We’ll map your AR process, set your chasing rhythm, and shave 10–15 days off DSO in the next quarter.
- Download the 52-week rolling forecast (free). See how faster collections improve your cash runway, VAT comfort, and investment headroom.