Late Payment and Receivables Management: How to Get Paid Faster

Why is late payment an issue for every owner?

An order is only finished when the money is in the account. Until then, the business has prefinanced materials, wages, and energy and has in effect given the customer an interest-free loan. As revenue grows, that loan grows, and it grows further the later customers pay. Full order books and an empty account are therefore not a contradiction, as the article Growth costs liquidity shows.

This piece asks: what can a small business do itself to make its customers pay on time, and where does it hit limits that only legislators or market power can move? To answer it, we first clarify the terms and the current situation, then look at two explanations from research, then at the legal framework, and finally at a tool for your own business.

An open invoice is a loan you never applied for. If you don't manage it, you are financing your customers.

Payment term, delay, collection period: what the terms mean

The payment term is the period you grant the customer to pay, for example 14 or 30 days from the invoice date. Payment delay in the commercial sense is the time by which the customer exceeds that term. The collection period is both together: the time from invoice to receipt of payment. In reporting it is often called DSO, days sales outstanding.

The German credit agency Creditreform regularly analyzes its debtor register, to which companies report their payment experiences with business customers. For the first half of 2026, the average payment term was 32.21 days, the highest since 2019, and the collection period was 40.35 days (Creditreform 2026, as reported by Retail-News).

The gap by company size is striking. Large companies with more than 250 employees received on average 35.51 days to pay, small companies 26.37 days. For delays the picture reverses: small and mid-sized companies paid on average just over ten days late, large ones just under seven.

The figures are averages over a very large number of payment experiences and say nothing about any single customer. They do show a direction, however: longer terms and later payments tend to fall on small suppliers.

Why do customers pay late? Two explanations from research

A useful model is the distinction between two motives that finance research describes for trade credit. Trade credit is any payment term a supplier grants. Customers use it out of a transaction motive, because it is more convenient to collect invoices and pay them in batches. Or they use it out of a financing motive, because the supplier's money is easier to get than a bank loan. Howorth and Reber (2003) show that habitual late payment is linked mainly to the second motive.

First reading: late payment is deliberate

Howorth and Reber combined a statistical analysis of small UK firms with 13 case studies. Firms that habitually paid late had more often struggled to get bank finance, were themselves more often paid late, and used long-term finance less often. A second finding stands out: the more concentrated a customer was on a few suppliers, the more likely it was to pay late. The case studies explain this by noting that such customers knew their suppliers' credit control well and knew exactly how far they could go without consequences. The authors also cite surveys according to which 84 percent of small firms pay their suppliers late at least occasionally.

Second reading: late payment is a process problem

Maque and San-José (2017) consider this explanation incomplete. In a case study of the relationship between a large Spanish company and its small suppliers, they describe late payment as the result of routines, that is, established processes on both sides. At the large company, invoice approval passed through many hands and was unbalanced; at the suppliers, the process was simple but passive. The authors quote a 2016 European Commission report stating that the late payment directive at the time had “so far not had any major impact on payment behavior.” Their conclusion: laws alone do not solve the problem; the processes have to change.

Both readings are supported by evidence, and they are not mutually exclusive. For a small business the distinction is still useful because it shifts the question. Against a customer who pays late on purpose, upfront checks and clear terms help most. Against an invoice that gets stuck somewhere, a better routine of your own helps. I consider the second the bigger lever, because it lies entirely in the supplier's hands.

What does the law say about late payment?

In Germany, the Civil Code (BGB) governs when a customer is in default and what that costs. The points below summarize the general framework for business-to-business transactions. They do not replace legal advice, and details depend on the contract.

At the European level, the Commission proposed in 2023 to replace the existing directive with a regulation and a fixed cap of 30 days. In 2024 Parliament approved a weaker version allowing up to 60 days if expressly agreed. The Council found no majority. In its work programme for 2027, presented on November 4, 2026, the Commission, according to consistent reports, put the proposal on the list of initiatives it intends to withdraw. A European solution is therefore not in sight for the foreseeable future.

One observation by Howorth and Reber matters here: many suppliers never claim their statutory right to default interest. That is understandable, because nobody wants to annoy a good customer. But it has a consequence. If you never charge interest, you signal that paying late costs nothing.

The receivables chain: five links from contract to escalation

Both readings lead to a tool I call the receivables chain. It orders the five points at which a payment can be delayed and sets a rule for each. As with any chain, the weakest link breaks: the best reminder routine helps little if the invoice was misaddressed in the first place.

1. Before the order: customer and terms

   Briefly check new customers who get a payment term, as described in the due diligence guide. Set payment term, deposit, and installments in the quote, not only on the invoice.

2. With the order: secure the invoice details

   Ask for the purchase order number, the contact in accounts payable, and the billing address when confirming the order. Missing details are the most common reason invoices get stuck in approval.

3. On delivery: invoice immediately and correctly

   Issue the invoice on the day of acceptance or delivery, with proof of performance. Every day between delivery and invoice adds exactly one day to the collection period.

4. At the due date: remind friendly and firmly

   A short reminder three days before the due date, and a call to accounts payable the day after. The aim is to ask whether anything is missing, not to accuse.

5. After default: escalate in fixed stages

   After a set period, a formal reminder referring to default interest and the flat-rate fee, then a collection agency or court payment order. For large customers, decide beforehand who in the business will hold the conversation at management level.

What does a long collection period cost? A worked example

How much money is tied up in open invoices can be roughly estimated: annual revenue divided by 365, multiplied by the collection period in days. The result is the money that on average sits with customers instead of in your own account.

In this worked example, every day shorter frees up about 6,600 euros. Ten days less correspond to an amount for which many small businesses would otherwise draw on their overdraft line. The calculation is deliberately simple and assumes even revenue across the year. It is sufficient for a decision.

Where receivables management reaches its limits

The receivables chain fully helps against process problems and partly against deliberate late payment. It does little against market power. A large customer who imposes 60 days will continue to do so even with the best reminder routine. Other means count here: installment payments, pricing that factors in the long term, or a deliberate cap on that customer's share of revenue, as described in the article Concentration risk.

Silva (2025) provides a finding based on data from European small and mid-sized companies for 2012 to 2019. The relationship between trade credit granted and profitability has the shape of an inverted U: a moderate payment term goes with higher profitability, very high receivables with lower profitability. This is especially pronounced for companies with little financial flexibility, where any deviation from the optimal level hits through late payment or default. A payment term is therefore also a sales argument, but only up to a point.

A second limit is the relationship. Receivables management must not lead to a tone that drives good customers away. The solution is transparency: if you state the rules in the quote and then keep to them, you come across as reliable, not petty. How the e-invoicing requirement from 2027 affects this process and why it can speed up invoicing is described in The e-invoicing requirement. How to judge which customers are worth which concessions is shown in Calculating customer value.

What you can do this week

• Calculate the collection period for the past three months: open receivables divided by revenue, multiplied by the number of days.
• Go through the ten largest open invoices and note for each which link of the chain it is stuck at.
• Add a required field for the purchase order number and accounts payable contact to your order confirmation.
• Create a reminder template for three days before the due date and set it up as a fixed follow-up.
• Put the escalation stages and deadlines in writing and agree them with your bookkeeping or tax advisor.
• Make a shorter term or a deposit the standard for new customers without a track record, as described in Due diligence on business partners.

Conclusion: what a small business can do about late payment

We began by asking
a small business can do itself and where it hits limits. Against the market power of large customers, only terms set before the order and a deliberate spread of revenue help. Against the large remainder of late payment, the invoice without a purchase order number or the reminder that never came, the business holds every lever itself.

Research shows that late payment often arises where customers know it costs nothing. The simplest countermeasure is therefore not toughness but reliability: clear rules, stated early, and then kept. If you work this way, you get paid faster because you become predictable for your customers.