How to chase late payments and get invoices paid

Late payment is the most common cash flow problem for UK businesses that sell on credit, and the one most owners handle least systematically. This guide is for directors and sole traders owed money by other businesses: how to prevent late payment, a chasing routine that works, your legal rights to interest and compensation, and what to do when a customer simply will not pay. Smart Funding Solutions is a broker arranging finance from around £10,000 to £500,000+, with larger facilities available in suitable cases, including invoice finance for businesses that want to stop waiting; our invoice finance hub explains those options. Most of this guide, though, is about getting paid without borrowing at all.

01Prevention starts before the invoice

Most late payment is decided before the work is done. The businesses that get paid on time tend to do four things:

• Check new customers. Look at filed accounts and any charges on the Companies House register, and for larger companies see how long they actually take to pay on the GOV.UK payment practices service. Set a credit limit you are comfortable with.
• Agree terms in writing. Payment period, what triggers it, late payment interest and who approves invoices. A signed order or accepted quote with your terms attached is far easier to enforce than an email chain.
• Get the purchase order number. Large organisations often reject or park invoices without one. Ask who in accounts payable handles your invoices and what their payment runs are.
• Take deposits or stage payments on large or made-to-order jobs, so you are never owed the whole value at once.

02A chasing routine that works

Consistency matters more than tone. Customers pay the suppliers who chase predictably first.

1. When you invoice: send it to the named contact and to accounts payable, quoting the order number, with your bank details and due date in plain view.
2. A week before the due date: a short email confirming the invoice has been received and approved. This surfaces queries while there is still time to fix them.
3. The day after the due date: a phone call to accounts payable. Ask when it is scheduled for payment and note the name and answer.
4. Seven to fourteen days overdue: a formal reminder letter stating the amount, the original due date and that statutory interest and compensation are now being added.
5. Thirty days overdue: escalate to a director or senior contact, and consider pausing further supply or work until the account is up to date.
6. Final step: a letter before action giving a short deadline before you issue a court claim.

Keep a log of every contact. If the debt ends up in court, a dated record of reminders and promises is evidence.

03Your legal rights: statutory interest and compensation

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts between businesses. Unless your contract sets out its own substantial remedy for late payment, you can claim:

• Statutory interest at 8 percentage points above the Bank of England base rate, calculated daily from the day after payment was due.
• Fixed compensation for each invoice: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more.
• Reasonable recovery costs above the fixed sum, such as a collection agency's fees, where you can show they were incurred.

If no payment date was agreed, payment is due 30 days after the customer receives the invoice or the goods or services, whichever is later. GOV.UK sets out the rules, including how the reference base rate is fixed, in its guide to charging interest on late commercial payments.

Many owners never claim, fearing it will damage the relationship. A practical middle course is to state the right on every invoice and in the first formal reminder, then decide case by case whether to enforce it. Customers who know you are aware of the law tend to move you up the payment queue.

04When a customer still will not pay

Find out whether it is a dispute

Non-payment usually has one of three causes: a genuine query, a customer with cash flow trouble, or a customer using you as free credit. A query needs resolving, ideally by paying the undisputed part now. Cash flow trouble may justify an instalment plan in writing. Deliberate delay calls for escalation.

The Small Business Commissioner

If your business has fewer than 50 staff and the customer is larger, the Small Business Commissioner can take up a complaint about late payment and unfair payment practices, free of charge. It is a useful step before court, and large companies tend to respond to it.

Letter before action and court claims

A letter before action sets out the debt, interest and compensation, and gives a deadline, commonly 14 days for a company. If the debtor is a sole trader or individual, the Pre-Action Protocol for Debt Claims applies, which requires a specific information sheet and at least 30 days to respond. After that, in England and Wales you can make a court claim for money online. Court fees depend on the amount and can usually be added to the claim. Scotland and Northern Ireland have their own procedures.

Statutory demands and winding up

For an undisputed debt owed by a company, a statutory demand followed by a winding-up petition is a powerful but blunt tool. It should never be used on a disputed debt, because the court can order costs against you, and it may end the customer relationship and your chance of further work. Take legal advice first.

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts between businesses.

05Tax relief on debts that never arrive

If you account for VAT on invoices and a customer never pays, you may be able to reclaim the VAT through bad debt relief once the debt is more than six months overdue and has been written off in your VAT records. Bad debts written off can also be deducted for income tax or corporation tax. Ask your accountant to review aged debts at each year end so nothing is missed.

£150,000A transaction we arrangedMain contractors slow to pay. £150K released from selected invoices.A specialist subcontractor wanted cash from a few large invoices without putting its whole sales ledger on a factoring facility.

06Using finance to stop waiting

Chasing gets you paid sooner; finance gets you paid now. If customers are good for the money but slow, these options turn the ledger into cash:

• Invoice factoring advances against invoices and takes over credit control, which suits businesses that would rather not chase at all.
• Invoice discounting advances against invoices while you keep collecting, usually confidentially.
• Selective invoice finance funds one slow invoice from a large customer without a long contract.
• Credit insurance pays out if an insured customer becomes insolvent, and often makes funding easier to obtain.

If one slow customer accounts for most of your ledger, read our page on high-concentration invoice finance; for overseas customers, see export invoice finance. Barristers, accountants and other professionals waiting on fees should read our guide to aged debt funding. To compare providers, see our invoice finance comparison guide.

07What lenders look at in a slow-paying ledger

A history of late payers does not rule out invoice finance, but it shapes how much a provider will advance. Expect it to check:

• Who your customers are: their credit strength, since the provider is relying on them to pay rather than on you.
• Ledger age: how much is past due and by how long; invoices well beyond terms are often excluded from funding.
• Disputes and credit notes: how often invoices are queried, reduced or never paid in full.
• Concentration: whether one or two customers make up most of the ledger.
• Your paperwork: whether each invoice is backed by an order and proof of delivery, so it can be enforced.
• Your chasing record: a consistent routine shows the provider the ledger is managed, not left to drift.

08Documents to keep for every customer

09How we help with slow payers

If late payment has left a hole in cash flow that chasing alone will not fill in time, for wages, a VAT quarter or a supplier deadline, we can look at what fits.

1. Review the ledger: who owes what, how old it is and how reliable each customer has been.
2. Match the option: whole-ledger, selective or a short-term facility, or a reason not to borrow.
3. Approach suitable providers: only those on our panel that fit your customers and sector.
4. Provider decision: the provider checks your customers and invoices and makes its own decision.

It is free to enquire; any broker fee is disclosed separately before you proceed. If tax is the pressure point, our comparison of Time to Pay and tax loans may help first.