Chasing unpaid invoices is one of the most persistent problems facing UK SMEs — and one of the most avoidable.
According to Hiscox’s 2026 Late Payment Report:
- Up to £54.5 billion is tied up in unpaid invoices each year
- Late payments are the single biggest cashflow issue for 58% of SMEs
- 20% of business invoices are not paid on time
The scale is significant, but for most businesses the problem is not necessarily bad debtors — it is a process that lets invoices age without consistent follow-up. Reminders that go out late. Escalations that never happen. Money that should have arrived weeks ago left sitting in someone else’s account.
The consequences compound over time. Cashflow tightens. Working capital gets frozen. Profitable businesses find themselves genuinely short of cash — not because they are not earning, but because they are not chasing consistently enough to get paid on time.
The UK Government has confirmed incoming legislation that will fundamentally change the legal framework around late payment. That is covered in detail here:
How Accounts Receivable Automation Changes Invoice Chasing for UK SMEs
A professional invoice chasing process has a defined structure. It is not a series of
ad hoc emails sent whenever someone gets round to it.
What is DSO and Why Does It Matter?
Days Sales Outstanding – DSO — is the average number of days it takes your business to collect payment after raising an invoice. It is one of the most important numbers in your business, and most SME owners either do not know it or are not tracking it.
How to Calculate DSO
DSO = (Accounts Receivable ÷ Total Credit Sales) × Number of Days
For example, if your business has £80,000 in outstanding receivables at the end of a 90-day period, and your total credit sales over that period are £300,000:
DSO = (80,000 ÷ 300,000) × 90 = 24 days
A DSO of 24 days against 30-day payment terms means you are collecting, on average, 6 days before terms expire. That is a healthy position. A DSO of 55 days against 30-day payment terms means you are collecting 25 days late on average. That gap represents cash that has been earned but not received — cash that cannot be used to pay staff, suppliers, or invest in growth.
Why DSO matters beyond the number itself?
A DSO of 24 days against 30-day payment terms means you are collecting, on average, 6 days before terms expire. That is a healthy position. A DSO of 55 days against 30-day payment terms means you are collecting 25 days late on average. That gap represents cash that has been earned but not received — cash that cannot be used to pay staff, suppliers, or invest in growth.
A falling DSO tells you the opposite. It means your chasing process is consistent, your debtors know you will follow up, and cash is moving through your business at the rate it should be.
How Much Working Capital is Locked Up in Your DSO?
Working Capital Locked Up = (Annual Revenue ÷ 365) × Excess DSO
For a business with £1m in annual revenue and a DSO of 55 days against 30-day terms, the excess DSO is 25 days:
Working Capital Locked Up = (1,000,000 ÷ 365) × 25 = £68,493
Reducing DSO by just 10 days in this example would release approximately £27,000 in working capital. For many SMEs, that is the difference between needing an overdraft and not needing one.
DSO Benchmarks by Industry
DSO varies significantly by industry. Shuttle Global’s UK DSO Benchmarks show where each sector sits, illustrating the five sectors most affected by late payment — and how much room for improvement exists for your business.
The Gap column is the most important figure. It shows how many days of cash a business is leaving on the table relative to its own agreed payment terms. In professional services, the average business is collecting 20–35 days later than its terms require. That is not a debtor problem. That is a process problem.
The Good DSO column represents what is achievable with a consistent, well-run invoice chasing process. It is not a theoretical target — it is what businesses with professional processes actually achieve.
| Industry | Average DSO | Typical Terms | Gap | Good DSO |
| Construction | 65–80 days | 30–60 days | 20–35 days | Under 45 days |
| Professional Services | 50–65 days | 14–30 days | 20–35 days | Under 30 days |
| Manufacturing | 55–70 days | 30–60 days | 15–25 days | Under 35 days |
| Wholesale & Distribution |
40–55 days | 30 days | 10–25 days | Under 25 days |
| Marketing & Agencies |
50–65 days | 30 days | 20–35 days | Under 30 days |
The Gap column is the most important figure. It shows how many days of cash a business is leaving on the table relative to its own agreed payment terms. In professional services, the average business is collecting 20–35 days later than its terms require. That is not a debtor problem. That is a process problem.
The Good DSO column represents what is achievable with a consistent, well-run invoice chasing process. It is not a theoretical target — it is what businesses with professional processes actually achieve.
What Late Payment Actually Costs Your Business
Late payment does not just affect the number in your bank account today. The effects compound across the business in ways that are easy to underestimate.
Cash Flow
The most immediate consequence is straightforward: the money is not there. Payroll still needs to go out. Suppliers still need paying. Tax deadlines do not change. A business with £150,000 in outstanding invoices — some of which should have been paid 60 days ago — is funding its operations from reserves rather than from revenue. If the reserves run dry, a profitable business can become genuinely insolvent, with the Small Business Commissioner estimating that poor payment practices cost the UK economy £11 billion annually, with small businesses disproportionately affected.
Borrowing Costs
Businesses that are short on working capital often turn to overdrafts, credit cards, or invoice finance to bridge the gap. That borrowing has a cost. The interest paid on an overdraft used to cover a payroll shortfall caused by unpaid invoices is a direct reduction in profitability — a cost that could have been avoided with a better chasing process.
Growth Constraints
Working capital tied up in unpaid invoices cannot be invested in hiring, equipment, or new opportunities. A business that is owed £100,000 in overdue invoices and needs to make a hiring decision does not have £100,000 available to fund that hire. Late payment does not just affect today’s cashflow — it limits tomorrow’s growth.
Bad Debt, Write-Offs and Litigation
The longer an invoice goes unpaid, the harder it becomes to recover. Invoices chased consistently from day one are significantly more likely to be paid in full than those left to age. A 90-day overdue invoice from a client who has received no reminders is in a very different position to one from a client who has received four structured, escalating communications.
At that point, the options narrow if non-payment persists: write off completed work you will never get paid for, or pursue litigation at a cost — in time, legal fees, and commercial relationships — that often exceeds the value of the debt itself.
The Time and Stress Cost
According to Hiscox’s 2026 Late Payment Report, chasing unpaid invoices is consistently cited by SME owners as one of the most stressful aspects of running a business. The time spent on it, the discomfort of the conversations, and the uncertainty around whether money will arrive create a persistent drain on attention that should be directed elsewhere.
Cash Flow Forecasting When You Have Unpaid Invoices
Cash flow forecasting when you have a significant volume of outstanding invoices requires more than looking at your bank balance. The gap between invoices raised and invoices paid is the most important variable in any short-term cash flow projection.
Start With Your Receivables Position
Before forecasting, establish exactly what you are owed and when it is due. An aged debt report — available directly from Xero – gives you the breakdown: current, 1–30 days overdue, 31–60 days overdue, 61–90 days, and 90 days plus. The older the debt, the lower the probability of collection, and the lower the weight you should apply in your forecast.
Apply Realistic Collection Rates
Not every outstanding invoice will be collected in full. A simple way to build this into your forecast is to apply collection probability weightings based on age:
- Current (not yet due): 95%+
- 1–30 days overdue: 85–90%
- 31–60 days overdue: 70–80%
- 61–90 days overdue: 50–65%
- 90 days plus overdue: 30–50%
These are illustrative ranges. Your own historical collection rates by age band are a more accurate guide, and worth calculating if you have not done so already.
Factor in Payment Commitments and Plans
If you have debtors who have made payment commitments or are on structured payment plans, include these in your forecast with the appropriate weighting. A payment plan that has been running for three months with no missed instalments is a more reliable forecast input than one agreed last week.
Improving your invoice chasing process does not just get you paid faster. It makes your business more predictable and easier to manage.
What You Can Do About Late Payment
The businesses that collect faster are not necessarily chasing harder. They are chasing more consistently. The same invoice, chased with a structured escalation sequence from day one, will be paid faster than one chased sporadically when someone gets round to it.
The other critical factor is who is doing the chasing. In most SMEs, the people responsible for collecting payment are the same people responsible for managing the client relationship. That structural problem is covered in detail in the next piece:
Why Invoices Go Unpaid
It is tempting to attribute late payment to difficult debtors. Some late payment is deliberate — larger businesses have been known to use extended payment terms as a form of short-term financing, paying later as a matter of policy rather than circumstance.
For businesses that want to understand what a professional chasing process looks like in practice — the escalation sequence, how to handle debtor replies, and how to implement a system that runs consistently without constant manual effort — that is covered here: A professional invoice chasing process has a defined structure. It is not a series of ad hoc emails sent whenever someone gets round to it.
How to Chase Invoices: What a Professional Process Looks Like
