Credit control: a simple weekly process that gets you paid, and how to automate it from Xero

Credit control is the process a business uses to get paid on time: checking a customer before you give them credit, agreeing clear payment terms in writing, invoicing promptly, and chasing to a fixed timetable when money is late. For most UK firms of 10 to 200 people it comes down to one hour a week with the aged debtors report, a chase timetable everyone follows, and knowing your legal levers: statutory interest at 8% over Bank Rate, fixed compensation of £40 to £100 per invoice, and a letter before claim.

Credit control is how a business manages the gap between doing the work and being paid for it. Any time you invoice on 30-day terms you are lending your customer money for 30 days, and credit control decides who gets that loan, how much, for how long, and what happens when they don't pay it back on time.

It has three parts:

1. Before the sale: credit checks, credit limits and payment terms.
2. During: accurate invoices sent promptly to the right person.
3. After: monitoring what's owed and chasing what's late, up to and including legal action.

In a small firm, credit control is usually a job, not a department: the owner, the office manager or a part-time bookkeeper does it between everything else. That is why it slips. This guide is about the business process. If you're being contacted by a debt collection agency that happens to be called Credit Control, that's a different matter, and Citizens Advice is the place to start.

Most late payment is decided before the first invoice. Four things make the chasing easier later:

• Check the customer. For a new account, look them up on Companies House (are their accounts late, has the company changed name or director recently?) and, for bigger orders, buy a credit report. Ask for trade references if the order is large and you know nothing about them.
• Set a credit limit. The most a customer can owe you at once. When they reach it, new orders wait until something is paid. Start new customers low and raise the limit as they pay on time.
• Agree payment terms in writing. The due date, how to pay, and what happens if they don't. If no date is agreed, the law treats a business payment as late 30 days after the customer receives the invoice or the goods or service, whichever is later. Agreed terms between businesses should usually be no more than 60 days, and longer terms must be fair to both sides.
• Know who pays. Get the name and email of whoever approves invoices, the purchase order number, and anything their accounts team needs on the invoice. A missing PO number is the most common reason an invoice sits unpaid without anyone telling you.

For large or long jobs, ask for a deposit or stage payments rather than one invoice at the end. The less you are owed at any one time, the less a late payer can hurt you.

Put a line on your terms and invoices saying you reserve the right to charge statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998. You have that right anyway, but customers pay more attention when they've seen it from day one.

Pick a fixed slot, say Monday morning, and work through the same list every week. Consistency matters more than the day: customers learn quickly which suppliers chase and which don't.

An aged debtors report (Xero calls it Aged Receivables) lists every customer who owes you money, split into columns by how long each invoice has been outstanding or overdue. Read it from right to left: the right-hand columns are where your cash is most at risk.

Here is a fictional 35-person building services firm on 30-day terms, with £412,500.00 owed at the end of September:

The headline figure looks fine: over half isn't due yet. The useful question is who sits in the right-hand columns. If the £44,800.00 at 31 to 60 days is one customer, that's one conversation this week, and it may decide whether they get more credit at all.

Two things make the report lie. Unallocated payments and credit notes sit as separate lines, so a customer can look overdue when they've actually paid; allocate them every week. And disputed invoices should be marked or noted, because chasing an invoice the customer has already queried, without fixing the query, annoys them and gets nothing paid.

Debtor days (also called debtor collection days, or DSO) is the average number of days customers take to pay you:

Debtor days = Trade debtors ÷ Credit sales for the year × 365

Using the example above: the firm's credit sales over the last 12 months were £2,750,000.00 before VAT, or £3,300,000.00 including VAT.

£412,500.00 ÷ £3,300,000.00 × 365 = 45.6 days.

One catch that trips almost everyone using Xero: the aged debtors figure includes VAT, because that's what the customer owes you, but sales on the profit and loss exclude it. Mix the two and debtor days come out 20% too high for a VAT-registered business selling at the standard rate. Either add VAT to the sales figure, as above, or take it off the debtors figure.

What counts as good? Compare debtor days with your own terms, not with an industry average. On 30-day terms, 45.6 days means the average customer pays about two weeks late. Each day of debtor days is worth £3,300,000.00 ÷ 365 = £9,041.10 of cash. Getting from 45.6 days down to 35 days would free up about £96,061.64, money the firm has already earned and is currently lending to its customers for free.

Work it out monthly, on the last 12 months' sales, and watch the trend. If your sales are seasonal, a 3-month version (debtors ÷ last 3 months' sales × 91) reacts faster.

Before it's late. The single most effective chase is the one a week before the due date, because it finds the missing PO number or the unapproved invoice while there's still time to fix it. After that, a fixed timetable that gets firmer at each step. This one assumes 30-day terms:

Change the days to suit your terms and your customers, but write the timetable down and stick to it. Whoever does credit control should be able to put an account on hold without asking permission. If the owner overrides every hold for a favourite customer, the timetable stops working for everyone.

Phone calls do more than emails. An email can be ignored; a call gets you a name, a reason and a date. Ask three questions: is there anything stopping this invoice being paid, when will it be paid, and who approves it? Then send a short email confirming what they said.

Short, specific and polite, with everything the reader needs to pay without replying: invoice number, amount, due date, and how to pay. Four you can adapt:

Before the due date
Subject: Invoice 1042 due on Thu 15 October
"Hi Sam, a quick check that invoice 1042 for £18,600.00 has reached you and is approved for payment on Thursday 15 October. If anything's missing, such as a PO number, let me know and I'll send a corrected copy today."

A few days overdue
Subject: Invoice 1042, now overdue
"Hi Sam, invoice 1042 for £18,600.00 was due on 15 October and is still showing as unpaid. Could you let me know when it's scheduled? A copy is attached, and our bank details are on it."

14 days overdue
Subject: Invoice 1042, 14 days overdue
"Hi Sam, invoice 1042 for £18,600.00 is now 14 days overdue. Please pay it by Friday 6 November. Under our terms we may add statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 to overdue invoices. I'd rather not, so please call me if there's a problem."

Final notice
Subject: Final notice: invoice 1042
"Invoice 1042 for £18,600.00 was due on 15 October. It now carries statutory interest of £5.99 a day and fixed compensation of £100.00. Unless we receive £18,600.00 plus interest to date by [date, 7 days on], we'll send a formal letter before claim, and we can't take new orders on your account until it's paid."

Only threaten what you will actually do. A final notice that's followed by another polite reminder teaches the customer that your final notices aren't final.

In England and Wales, a business owed money by another business has four main levers.

1. Statutory interest. The Late Payment of Commercial Debts (Interest) Act 1998 lets you charge interest at 8% a year over the Bank of England's Bank Rate on a late business-to-business invoice, unless your contract sets its own late-payment remedy. The Bank Rate used is the one on 30 June or 31 December before the debt became late, and it stays fixed for that debt. Bank Rate has been 3.75% since December 2025, so the statutory rate is currently 11.75%. The next Bank Rate decision is on 5 November 2026; the figures here assume the current rate.

2. Fixed compensation. On top of interest, you can claim a fixed sum for each late invoice, plus reasonable recovery costs beyond that, such as a collection agency's fee:

For the £18,600.00 invoice above, due on 15 October 2026 and paid 45 days late:

Many businesses never charge it, for fear of losing the customer. That's a commercial call. But stating it in your final notice, with the actual figure, often gets the invoice paid without your ever having to collect the interest.

3. A letter before claim. Before going to court you must give the customer a fair chance to pay or explain. For a debt owed by a company, the court's Practice Direction on Pre-Action Conduct applies: set out what's owed and how it's calculated, enclose copies of the key documents, and give a reasonable time to reply, which it puts at 14 days in a straightforward case. If the customer is an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies instead: they get 30 days to reply, and the letter must include the protocol's information sheet and reply form. Construction debts follow the separate construction protocol. Skip these steps and the court can penalise you on costs, even if you win.

4. A court claim. If the deadline passes, you can claim through the county court, online at GOV.UK's Make a money claim service if you know the exact amount. Claims up to £10,000 usually go to the small claims track. The issue fee depends on the amount claimed, including interest:

There may be further fees for a hearing or to enforce a judgment. Check the current fees on GOV.UK before you file, and take advice before suing for a large sum or starting insolvency steps against a customer.

Late payment law is changing. A Bill introduced in Parliament in May 2026 would cap payment terms at 60 days for larger businesses paying smaller suppliers, make statutory interest compulsory, and give the Small Business Commissioner new powers. At the time of writing it isn't law, so the current rules above still apply.

If you're a subcontractor, most of your money doesn't arrive on an ordinary invoice. It arrives through applications for payment under the Construction Act (the Housing Grants, Construction and Regeneration Act 1996), and the Act gives you rules, and leverage, that a normal supplier doesn't have:

• Deadlines are set by the contract, or the Scheme. Each application has a due date and a final date for payment. Chase to the final date, not to an invoice date in Xero.
• A payment notice and a pay less notice. If the paying party wants to pay less than you applied for, it must serve a valid pay less notice in time. If it doesn't, the notified sum is due in full by the final date. Our guide to the pay less notice covers the deadlines and a worked example.
• A right to suspend. If you're not paid by the final date, you can suspend work after giving at least 7 days' written notice. Take advice before you do.
• Adjudication for any dispute, with a decision usually within 28 days of referral.
• Statutory interest still applies to late payments, unless your contract sets its own remedy.

The practical difference for credit control: your aged debtors report isn't enough. You also need to know, for every application on every job, whether a payment notice or pay less notice arrived on time, and what's actually payable.

Xero's built-in invoice reminders, under Sales → Invoices → Invoice reminders, cover the first stage of the timetable well. As at October 2026:

For many small firms that's enough: switch reminders on, add one before the due date, and do the phone calls and final notices yourself in the weekly slot. Set up online payments too. A Pay now button on the invoice removes one of the easiest excuses for paying late.

The gaps start to matter when you have more invoices than one person can keep in their head, or customers who need different handling: a key account you'd never send an automated final notice to, a customer who always pays on their 45-day run, a disputed invoice that needs fixing rather than chasing.

Add-on chasing apps sit between Xero's reminders and a custom build, and they're worth a look first. A custom tool earns its place when the rules are specific to how your business works, or when chasing is one part of a bigger reporting problem. We build them on top of Xero, so your invoices and payments stay where they are. Typically that means three pieces:

• Chasers that follow your rules. Different timetables for different customers, chasing paused automatically when an invoice is marked as disputed, a promise to pay that moves the next reminder to the day after the promised date, and a final notice that works out the statutory interest and compensation for that invoice.
• A live debtors dashboard. Who owes what and how late, debtor days and its trend, accounts over their credit limit, and money promised this week, updated from Xero without anyone running a report. For contractors, the same screen can show applications by job against their final dates. Our article on building a business dashboard covers which numbers belong on it.
• Escalation to a person. When an invoice passes a point you choose, the tool stops emailing and gives a named person a task to phone, with the full chase history in front of them. Every contact is logged, so a letter before claim takes minutes to put together.

When it isn't worth it: if you send a few dozen invoices a month and most customers pay on time, Xero's reminders plus the weekly routine above will do. Spend the money once the weekly slot has grown into a part-time job, or when overdue debt is regularly squeezing cash flow.

If you'd like to see what a debtors dashboard looks like on your own figures, the sample dashboard below is a good start, and we'll build a free prototype on your own data.

This article is general information on credit control and the law in England and Wales as at October 2026, including the Late Payment of Commercial Debts (Interest) Act 1998, the Practice Direction on Pre-Action Conduct and the Pre-Action Protocol for Debt Claims. Scotland and Northern Ireland have their own court processes. Interest figures assume Bank Rate stays at 3.75%. It is not legal, tax or financial advice. Check your contract, and speak to a solicitor before you start a claim, suspend work or take insolvency steps.