How AI Can End the Late Payment Crisis

My early mornings as COO of OTAS Technologies were spent juggling cashflow. We had to meet payroll and make regular payments to data providers. We also had outstanding invoices from clients scattered across the world’s financial centres, each exposed to their own performance, currency and market conditions. The outflows were more predictable than the inflows.

Recent research for Sage by the Centre for Economics & Business Research shows 44% of invoices are paid late. The average small firm with less than ten staff is owed £42,000. Extrapolating Sage data across the economy suggests unpaid small business invoices worth £112 billion and rising at around 4% a year.

That mountain of IOUs translates into slower hiring, stalled investment and, as I can attest, sleepless nights wondering whether payroll will clear. There is an answer, however. The same AI tools banks use to spot fraud can be repurposed to chase and prevent late payments, with minimal code and modest budgets.

Why Do Customers Pay Late?

The most common cause of late payment is friction. Clients lose invoices in overflowing inboxes, or are waiting for a monthly payment run. Information may be missing, such as purchase order numbers and complete bank details. A simple reminder may be all it takes to resolve an issue.

This is not to deny that larger buyers use supplier credit as an interest-free loan. In this case, there is generally a patten of behaviour that can be predicted and planned around. AI excels at spotting such patterns and helping small businesses plan for smoother cashflow.

Where AI Fits in the Credit-to-Cash Cycle

Here are some of the ways that small businesses use AI to improve cash collection and reward their best-paying clients.

A 30-Day Pilot You Can Run

1. Connect the data pipes (Day 1-3).
Pull invoice history from Xero, Sage 50 or QuickBooks into a warehouse such as Google BigQuery. A no-code middleware like Zapier makes the plumbing fast.

2. Train a simple model (Day 4-10).
Use a tool like Akkio or AWS QuickSight to score each buyer on the probability they will breach terms. Even a two-tier model using “Likely Late” and “Likely On-Time” is an improvement on gut feel.

3.  Automate the nudge sequence (Day 11-18).
Build an Airtable or HubSpot workflow:

• Reminder email 5 days before due date if risk ≥40%.

• SMS escalation on Day 3 past due.

• Interest notice on Day 10 past due.

Templates can pull individual client details so the message always feels personal.

4. Monitor ROI (Day 19-30).
Track Days-Sales-Outstanding (DSO) and recovery rate for test and control cohorts. The first uses the new system and second the old way of working. Most pilots see a 15-25% reduction in average late days within the first billing cycle.

Tool Stack for Non-Coders

The biggest challenge for non-technical businesses is knowing where to start. Here are some of the most common tools used by small businesses. Buying bundled services from these providers can result in lower costs than the list prices.

What to watch out for

Overzealous bots can pester good customers. Start by setting conservative thresholds and include easy opt-outs in reminders.

The UK Late Payment of Commercial Debts law allows statutory interest, but premature threats will cost you customers. Keep the language courteous until the legal trigger becomes unavoidable.

Remember, AI models require clean data. Before you start any AI trial, you must dedicate a day to cleanup customer IDs and payment dates, and fill-in any missing information.

Prevent Late Payment Before It Starts

The best way to avoid late payments is to make it easy to pay. Embedding open banking “Pay Now” buttons in e-invoices reduces the friction involved in payment.

In any group of clients there will be those who always pay late. You might choose to flip the advice above and offer discounts to serial offenders for early payment. An alternative is to integrate with factoring platforms such as MarketFinance. You route riskier invoices for financing, taking a haircut in return for upfront payment.

Late payments may never vanish, but AI can shrink the pile and reduce the stress in a matter of weeks. I only wish these options had been around when I was spending my most productive time inventing novel ways to keep a profitable business from being dragged down by unpredictable payments.

Questions to Ask and Answer

1. Which ten customers account for 80% of my overdue value?

2. What would a 20% reduction in DSO add to my cash balance?

3. How quickly could I pilot an automated reminder workflow without writing code?

Need a hand? Hit reply to this newsletter and ask about an “AI CashFlow Audit”. My team will map your invoice process and design a 30-day pilot you can run with off-the-shelf tools.