Summary

  • Decide first whether to charge it at all. Most businesses don’t need to. Saying the charges are about to start often gets the invoice paid, or gets a reply after weeks of silence.
  • Setting out the fee and offering to waive it is the low-friction route. It gives the customer a reason to act now while keeping the relationship intact.
  • Tell the customer in writing with the numbers broken out. Interest, compensation, the new total, and the date by which paying the original amount avoids all of it.
  • If you do charge it, raise it as a separate no-VAT invoice in Xero.
  • Escalate in steps. A final reminder, then a statement of the full balance including accrued interest, then a letter before action.

Decide: Charge straight away or offer to waive

Most businesses never actually apply a late fee because they don’t need to. Telling a customer that statutory charges are about to start is often enough to get the invoice paid, or at least get a reply after weeks of silence.

A common, low-friction approach is to set out the fee and then offer to waive it if they pay the original amount by a short deadline. That gives the customer a reason to act now while keeping the relationship intact.

Tell the customer

Here’s an email you can adapt. It states the charges clearly, but makes the point that you’d rather resolve it without them.

Email template

Subject: Outstanding invoice INV-1234


Hi Mary,


I’m writing about invoice INV-1234 for £280, which was due on 1 January.


We’ve been in touch a few times (5 Jan, 12 Jan, 19 Jan and 26 Jan) but haven’t received payment or heard back about any issue with the invoice.


In line with our payment terms and UK late payment legislation, we’re now in a position to apply the following statutory charges:

  • Late payment interest: £3.52
  • Debt recovery compensation fee: £40.00
  • Total late fees: £43.52

That would bring the outstanding balance to £323.52.


We’d much rather resolve this without the extra charges. If you settle the original £280 by 16 February, we’ll waive the late fees entirely.


Do let me know if there’s anything holding up payment.


Kind regards,
Anna

Escalate the tone gradually, from a first gentle nudge through to a formal escalation notice, rather than jumping straight to threats.

Generate the late payment fee invoice

If you decide to charge it, raise the interest and compensation as a separate invoice in Xero with no VAT. The method is in how to add late payment fees to invoices in Xero, or you can use Trove’s free plan Treasure to raise and update it for you.

If they pay, waive it

Most businesses waive the fee once the original invoice is settled. It’s done its job as leverage, and collecting it costs more goodwill than it’s worth. Waiving a late payment fee once the customer pays covers how to do that without it looking like a climbdown, and how to avoid a pile of credit notes if you’ve already raised the fee in Xero.

When to escalate

If the fee and a clear email still don’t work, escalate in steps: a final reminder, a statement of the full balance including accrued interest, then a letter before action setting out that you intend to recover the debt. Because statutory interest keeps accruing daily, time is on your side - the longer they leave it, the more they owe.

Treasure by Trove is a free late payment fee calculator that connects to Xero. And if you want fees applied, chased and waived automatically across the whole ledger, all of Trove’s paid plans include a free 30-day trial or you can book a demo.