Free guides and webcasts

Break the late payments cycle with human psychology 

In this article we help you understand why late payments happen and how you can avoid it in future.

woman at work

You’ve done the work. But the due date has come and gone, and there is still no sign of payment. 

You’re getting increasingly frustrated and stressed as you have your bills and other clients to manage. You start to resent your customer and even consider getting a debt collection agency involved. 

You decide to take a step back and examine the situation more objectively.  

Getting angry won’t help you get paid, so you dig deeper to understand the emotional reasons behind the late payment.  

Instead of sending an aggressive reminder, you reach out to your customer with empathy and genuine concern. 

To your surprise, your customer responds almost immediately with a heartfelt apology.  

Your client explains that their business had recently suffered from unexpected setbacks. As a result, they are struggling financially and feeling overwhelmed and embarrassed about being unable to pay on time. 

Your empathetic approach lets you see your client’s perspective and understand the emotional reasons behind their late payment. They value your work but are going through a difficult time.  

You work with your client to develop a flexible payment plan to ease their financial burden while ensuring you get paid for your services. 

Say goodbye to late payments

Get paid faster with our late payment templates

Download now


In the end, you receive payment and develop a strong relationship. 

You now have a loyal client who refers you to other businesses, ultimately helping you expand your client base.  

Late payments can be frustrating for any business owner. They can create cash flow issues, impact your ability to pay your bills, and affect your stress levels.  

By taking the time to understand the emotional reasons behind late payments, you not only resolve the immediate issue but also gain valuable insights that allow you to navigate future client relationships with more empathy and understanding. 

Why you need to understand the psychology behind late payments 

Small and medium-sized businesses (SMBs), including “micro” companies, are critical to the US economy. 

One of the biggest challenges that they face is late payments, which can have a significant impact on cash flow, profitability, and overall financial health. Late payments can be frustrating, especially when you have bills to pay and employees to compensate. 

Phil Chesham, Managing Director of Invoice Finance at Time Finance, believes we need to understand the challenges that cause many businesses to go under to provide better support and avoid preventable insolvency. 

Phil says: “It’s no surprise that late payments are causing repercussions. This isn’t sustainable for businesses. Their revenue is their lifeline; it’s how they meet their overheads and realize their ambitions. 

“Without cash in the bank, you don’t pay the bills and put growth plans on hold. Both are huge threats to any business.” 

Technology has made significant strides in helping businesses tackle late payments—but it’s important not to overlook human psychology with digital methods of getting your money on time. 

By understanding the emotions and motivations behind late payments, you can improve your collection strategies and build stronger relationships with your clients, ultimately fostering a more reliable and efficient payment ecosystem supported by technology. 

Will Yang, Head of Growth and Customer Success at Instrumentl, says: “Understanding the psychology behind late payments can help you anticipate and prevent them.  

“Late payment behavior often stems from a lack of understanding or appreciation for the exchange value. If customers don’t see the immediate ROI of paying on time, they may be more likely to delay or find excuses not to pay.  

“To mitigate this risk, it’s important to create strategies emphasizing timely payments’ importance.” 

Let’s see how you can increase your chances of getting paid on time and foster long-lasting client relationships. 

Here’s what we talk about: 

The role of empathy and communication 

When clients feel understood and valued, they are more likely to prioritize their payments and maintain a positive relationship with you.  

You can establish trust, build rapport, and maintain a positive relationship by showing empathy towards your clients and communicating effectively. 


Empathy is the ability to understand and share the feelings of others. You can build rapport and establish trust by showing empathy towards your clients.  

When clients feel that you understand their concerns and are willing to work with them, they are more likely to pay on time and maintain a positive relationship with you. 

Effective Communication 

Addressing your clients’ concerns is an important part of effective communication.  

By taking the time to understand their perspective and addressing any issues they may have, you can help build a stronger relationship and encourage timely payments. 

Use non-confrontational language. Avoid using language clients may perceive as confrontational or aggressive. Instead, use a diplomatic tone and focus on finding solutions for both of you. 

Mark Pierce, CEO of Cloud Peak Law Group, suggests that people make late payments because they aren’t fully aware of the consequences. 

He says: “One way to rectify this is to make the payment terms explicitly clear, including what additional fees you charge if the payment is late.  

“Don’t bury these terms under the general terms and conditions. Have them featured prominently and as simply as possible.  

“While you can’t guarantee someone will read them in full, it greatly increases the likelihood that they’ll at least stop and read the late fees section.” 

Mark says that when sending payment reminders: 

  • Don’t be vague.  
  • Tell them that late fees are due in your message.  
  • Be specific and include the actual amount they owe.  

He adds: “Make the late fees concrete rather than abstract. List a percentage so it stands out. Also, attach a copy of the late fees policy so it’s front and center.” 

Get social 

While traditional methods such as phone calls and emails can be effective, you can leverage messaging apps to contact customers and encourage timely payment. 

Messaging apps have become increasingly popular, with many individuals using these platforms to communicate with friends, family, and businesses. Using these apps to contact customers about late payments, you can take advantage of their convenience and immediacy. 

One of the advantages of messaging apps is that they are often more informal and conversational than traditional communication methods. You can build that rapport with customers and encourage them to respond more quickly.  

Additionally, messaging apps allow you to send reminders and follow-ups without interrupting the customer’s day-to-day activities. 

When using messaging apps to contact customers about late payments, it’s even more important to keep the tone polite and professional. 

Yet keep it old school 

Use messaging apps with other communication methods, such as phone calls and emails, rather than as a replacement. You can ensure customers receive multiple reminders and follow-ups, increasing the chances of prompt payment. 

Customize your late payment approach based on client psychology 

Once you’ve understood the reasons behind late payments, you can develop tailored approaches, adapting your collection strategy to different client types and situations. 

You can build stronger relationships, improve cash flow, and maintain a positive reputation by customizing your approach based on client psychology. 

Here are some of the most common reasons for late payments and how you can fix them. 

Dissatisfaction with the product or service 

Sometimes, late payments may be due to client dissatisfaction with your product or service. They may withhold payment until they are satisfied with the outcome. 

What you can do: 

If dissatisfaction is the problem, consider contacting your client to address their concerns and work towards a resolution.  

By proactively contacting the client, you can demonstrate that you are committed to their satisfaction and happy to fix whatever problem there is. 

Consider offering a refund or discount if appropriate, and be sure to follow up to ensure you resolve the issue. 


Sometimes, late payments are due to forgetfulness. Your client may intend to pay on time, but their busy schedule or other priorities may cause them to overlook your invoice. 

What you can do: 

If forgetfulness is common, consider setting up automatic payment reminders or sending follow-up emails to ensure your clients remember to pay.  

Online billing software or invoicing platforms allow you to send automated payment reminders that you can send via email or text message, which you can customize to suit the needs of each of your clients.  

For example, you can set up reminders to go out a few days before the payment is due, with follow-up reminders for overdue payments. Ensure your clients know upcoming payment deadlines and have ample time to make the necessary arrangements. 

For follow-up emails, you can use email marketing platforms to create customized email templates to send to clients who have not yet made their payments.  

You can include personalized messages, links to payment portals, and incentives such as discounts or promotional offers to encourage clients to pay on time. 

Cash flow issues 

Your client may be experiencing cash flow issues, which can cause them to delay payment. They may be waiting on payments from their own customers or experiencing a slow period in their business. 

Peter Piraino is the CEO of Burning Tree Programs, which provides long-term treatment programs for chronic addiction and mental health. He says that fear is often the main driver of late payments.  

He says: “Financial insecurity and mounting debt are the 2 most common fears for people who fall behind in payments.  

“Avoidance is an unhealthy way people cope with fear and stress. People will find themselves in a cyclical trap.  

“They’ll be afraid of their finances. They avoid taking action, meaning payments are late and debts mount. Their fear increases, and again they turn to avoidance.  

“This cycle can not only impact someone financially, but it can also lead to a breakdown of personal relationships and in many cases poses a serious health risk.” 

What you can do 

If cash flow issues are a concern, you may want to offer payment plans or flexible payment options to help your clients manage their cash flow. They can pay in instalments over time rather than in a lump sum.  

To create payment plans, you can use specialized software or payment processing platforms to create customized payment plans for each client, fixing the amount, frequency, and duration of payments.  

If you want to get fancy, consider using data analytics and predictive modelling to create more effective payment plans.  

By analyzing past payment behavior, you can identify patterns and trends to create customized payment plans that are more likely to be successful.  

Disorganization and procrastination 

Some clients may be disorganized and have trouble keeping up with their payments. They may have lost your invoice or forgotten to pay it on time. 

Brook McKenzie, Chief Operating Officer for Burning Tree Programs, says procrastination can be problematic. 

He says: “It stems from a desire to avoid the discomfort of confronting financial responsibilities or a lack of proper time management skills.  

“Individuals may sometimes prioritize more immediate or pleasurable tasks over managing their finances. This pattern can become habitual, leading to chronic late payment behavior.” 

What you can do: 

Manual invoicing methods can be time-consuming, error-prone, and difficult to track. Without a centralized system, your invoices can easily get lost or forgotten. 

Simplify your invoicing process or offer online payment options to make it easier for your clients to pay on time. You can use online billing software or invoicing platforms to generate invoices with clear amounts, payment instructions, and due dates. 

Make sure clients can make payments from anywhere, anytime, using their preferred payment method. You can offer both online payment options, such as PayPal or credit card payments, and traditional payment methods, such as checks or bank transfers.  

With manual invoicing: 

  • You may struggle reconciling payments, tracking outstanding balances, and managing cash flow.  
  • You may not provide clients with the necessary information to pay on time, leading to confusion and delayed payments. 

In contrast, invest in modern, streamlined payment processing systems, and you can: 

  • Benefit from increased efficiency, improved accuracy, and faster payment-processing times.  
  • Automate invoice creation and payment processing, providing a clear, centralized view of your finances and reducing the risk of errors and missed payments. 

Say goodbye to late payments

Get paid faster with our late payment templates

Download now

The power of positive reinforcement 

Positive reinforcement is a powerful tool for encouraging timely payments and building stronger client relationships—the practice of rewarding desired behavior to encourage its repetition.  

By rewarding clients who pay on time, you encourage them to continue prioritizing your invoices in the future. You can establish a culture of trust and reliability. 

Here are some ideas for using positive reinforcement to reward clients who pay on time: 


Offering a discount on future services or products can be a powerful incentive for clients to pay on time. Consider offering a percentage off their next purchase. 

Offer incentives for early payment. For example, offer a discount or gift to clients who pay within a certain timeframe. This not only encourages early payment but also helps to build goodwill, improving the overall relationship and increasing the chances of repeat business. 

Loyalty programs:  

Creating a loyalty program for clients who consistently pay on time can help build long-term relationships and encourage repeat business. Consider offering exclusive discounts, rewards, or perks for members of your loyalty program. 

Personalized thank-you notes:  

Sending a personalized thank-you note or email to clients who pay on time can help show your appreciation and strengthen your relationship with them. Consider using a handwritten note or including a small gift or token of appreciation. 

Equally, you could send personalized thank-you notes using email marketing platforms. These platforms allow businesses to create customized email templates and automate sending thank-you notes to clients who pay on time.  

You can include personalized messages, images, and even videos to make thank-you notes more engaging and memorable. 


Recognizing clients who consistently pay on time on your website or social media can help build a positive reputation for your business and encourage others to prioritize timely payments. 

Leo Smigel, the founder of algorithm trading website Analysing Alpha, says: “Sending gentle reminders and personalizing your communication can massively impact payment behavior.  

“In my opinion and from personal experience, people are more likely to respond when they feel respected and valued positively.” 

Use behavioral economics to your advantage 

What is behavioral economics? 

Behavioral economics studies how people make financial decisions that can be illogical, often because of cognitive biases, mental shortcuts, limited rationality, or following the behaviors of others. 

Regarding late payments, behavioral economics could explain why some individuals may be more likely to make late payments on their credit cards despite potentially negative consequences, such as late fees and damage to their credit score.  

It could also explain why individuals overconfident in making prompt payments or procrastinating due to present bias may be more likely to make late payments.  

Additionally, individuals who lack financial literacy may not fully understand the consequences of late payments and would benefit from education and nudges to encourage on-time payment behaviors. 

How you can use behavioral economics 

Incorporating behavioral economics concepts into your invoicing and communication strategies can be a powerful way to encourage prompt payments from clients.  

By understanding the psychological factors that influence their behaviors, you can design strategies to appeal to these factors and increase your chances of success. 

Here are some behavioral economics concepts you can use to your advantage: 

Loss aversion:  

Loss aversion is the tendency for people to feel the pain of loss more strongly than the pleasure of gain.  

To take advantage of this concept, you can use language that emphasizes what the client will lose if they don’t pay on time, such as late fees or service disruption.  

You can also offer incentives framed as avoiding a loss, such as a discount for early payment. 

What you can do: 

  • Include a prominent late fee in your invoice and emphasize the potential consequences of not paying on time.  
  • In your communication strategy, use language emphasizing what the client will lose if they don’t pay on time. 

Social proof:  

Social proof is the idea that people are more likely to act if they see others doing it. Leo Smigel says that you should not underestimate the power of social proof.  

He says: “Including testimonials from satisfied customers or highlighting your company’s reputation for excellent service can instill trust. 

“It’ll encourage customers to value their relationship with your business, ultimately leading to better payment practices.” 

What you can do 

  • Include a message highlighting the number of clients already paid in your invoice. 
  • In your communication strategy, include testimonials from satisfied customers and emphasize the benefits of being part of a reliable group of clients. 


Anchoring is the tendency for people to rely too heavily on the first piece of information they receive when deciding.  

To use anchoring to your advantage, you can include a due date earlier than normal. 

You can create a sense of urgency and encourage clients to prioritize your invoice over others. 

What you can do: 

  • Include a due date in your invoice sooner than you would normally. 
  • In your communication strategy, use language that creates a sense of urgency and emphasizes the importance of paying on time. 

Final thoughts on the psychology of late payments 

Understanding the psychology behind late payments is essential if you’re looking to improve your payment collection efforts and maintain strong client relationships. 

We’ve covered how you can: 

  • Recognize common reasons for late payments 
  • Employ empathy and effective communication 
  • Customize your approach based on client psychology 
  • Leverage positive reinforcement 
  • Incorporate behavioral economics concepts 

Apply these insights to your payment collection strategies and explore additional resources, such as our late payment template letters, to enhance your efforts further.  

Say goodbye to late payments

Get paid faster with our late payment templates

Download now