Your Rights When Customers Pay Late: A Guide for UK Tradespeople

Late payments are costing UK tradespeople billions

According to the Federation of Small Businesses, late payments cost UK small businesses £22 billion a year. For tradespeople working job to job, a single late payment can cause serious cash flow problems.

The good news is that UK law gives you clear rights when commercial customers pay late. This guide explains what you can do.

The Late Payment of Commercial Debts Act 1998

This Act gives you two key rights when a commercial customer (another business, not a domestic consumer) pays an invoice late:

1. Statutory interest — you can charge interest at 8% above the Bank of England base rate, calculated from the day after the due date
2. Fixed compensation — £40 for debts up to £999.99, £70 for debts up to £9,999.99, £100 for debts of £10,000 or more

Use our late payment calculator to work out exactly what a customer owes you in interest and compensation.

Full details of the legislation are on gov.uk's late commercial payments page.

How statutory interest is calculated

The interest rate is the Bank of England base rate on the day the debt becomes overdue, plus 8%. As of early 2026, the base rate is around 4.5%, giving a statutory interest rate of 12.5%.

Interest is calculated as simple interest (not compound) on a daily basis. The formula is:

Daily interest = (Invoice amount x statutory rate) / 365

For a £5,000 invoice at 12.5%: daily interest = (£5,000 x 0.125) / 365 = £1.71 per day. After 60 days overdue, that is £102.74 in interest, plus £70 fixed compensation = £172.74 you can claim on top of the original debt.

You can check the current Bank of England base rate here.

When does the clock start ticking?

Interest starts accruing the day after your payment terms expire. If your invoice says "net 30" and is dated 1 March, payment is due by 31 March. Interest starts from 1 April.

This is why clear payment terms on every invoice are essential — they establish the due date that triggers your right to charge interest.

If your invoice does not state payment terms, the default under the Act is 30 days from the later of: the date the customer receives the invoice, or the date the work was completed.

Business customers vs domestic customers

The Late Payment of Commercial Debts Act only applies to business-to-business transactions. If your customer is a domestic homeowner, you cannot use this Act to charge statutory interest.

For domestic customers who will not pay, your rights come from general contract law. You can:

• Send a formal letter before action (giving 14 days to pay)
• Use the Small Claims Court for debts under £10,000
• Instruct a solicitor for larger debts
• Use a debt collection agency

You can also include a late payment clause in your terms and conditions for domestic work, but the interest rate must be reasonable — the 8% + base rate statutory rate is considered excessive for consumer contracts.

Practical steps to recover late payments

1. Send reminders promptly

Most late payments are the result of forgetfulness, not malice. A polite reminder the day after the due date resolves most cases. InvoiceAdept's automatic payment reminders handle this for you.

2. Follow up by phone

If email reminders do not work, call the customer directly. Be firm but professional. Confirm the amount, the due date, and ask when you can expect payment.

3. Send a formal late payment notice

If the invoice is more than 14 days overdue, send a formal notice stating the amount owed, the interest accrued (use our late payment calculator), and the compensation you are claiming. Give a final deadline of 7 days.

4. Consider mediation or the Small Claims Court

For debts under £10,000, the Small Claims Court is a straightforward process. You can file a claim online through Money Claims Online (MCOL). Court fees start from £35.

Recommended escalation timeline

Here is a practical timeline for chasing an overdue invoice:

• Due date: Invoice due. Automated reminder sent via InvoiceAdept.
• Day 1 overdue: Friendly email reminder — "Just a reminder that invoice [number] was due yesterday."
• Day 7: Second reminder — slightly firmer tone. Mention you will apply statutory interest if not paid within 7 days.
• Day 14: Phone call to the customer. Confirm they received the invoice and reminders. Ask for a specific payment date.
• Day 21: Formal late payment notice by email and post. State the interest and compensation you are now claiming under the Late Payment of Commercial Debts Act 1998. Give 7 days to pay.
• Day 30: Letter before action (LBA). State that you will issue court proceedings within 14 days if payment is not received. This is the standard step before filing a court claim.
• Day 44: File a claim via Money Claims Online if still unpaid.

Most debts are paid at the letter before action stage. The threat of a County Court Judgment (CCJ) on their credit file is a strong motivator for most businesses.

Using the Small Claims Court

For debts up to £10,000, the Small Claims Court (part of the County Court) is designed for people to represent themselves without a solicitor. The process:

1. File a claim online at gov.uk/make-court-claim-for-money. Court fees range from £35 (for claims up to £300) to £455 (for claims of £5,001-£10,000).
2. The defendant has 14 days to respond. They can pay, dispute, or request more time.
3. If they do not respond, you can request a default judgment — the court orders them to pay without a hearing.
4. If they dispute, the case goes to a hearing (usually informal, in a private room, lasting 1-2 hours).
5. Enforcement: If they still do not pay after a judgment, you can use bailiffs, attachment of earnings, or a charging order on their property.

You can add your court fees and reasonable costs to the claim amount. Keep all your invoices, contracts, emails, and reminder letters as evidence.

Adding late payment terms to your invoices

Stating your late payment terms on every invoice puts customers on notice and strengthens your position if you need to claim. Add a line such as:

"Late payment will incur statutory interest at 8% above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998, plus fixed compensation of £40-£100."

Generate professional payment terms including late payment clauses with our payment terms generator.

Prevention is better than cure

The best way to handle late payments is to prevent them:

• Always use written payment terms — generate yours with our payment terms generator
• Send invoices promptly — ideally on the day you complete the work. Use our invoice generator to create and send invoices from your phone on site.
• Offer card payments so customers can pay immediately — see our Stripe payments feature
• Set up automatic reminders via InvoiceAdept
• For new customers or large jobs, request a deposit upfront

Running credit checks on new commercial customers

If you take on a new commercial client for a large project, consider running a basic credit check before committing. Companies House provides free information on any limited company — check their filed accounts, outstanding charges, and whether any winding-up petitions have been filed. You can search for free at Companies House.

For more detailed credit reports, services like Creditsafe or Experian Business provide credit scores and payment behaviour data. This is especially worthwhile for subcontractors taking on work from unfamiliar main contractors.

Frequently asked questions

Can I charge interest on domestic (homeowner) invoices?

The Late Payment of Commercial Debts Act only covers business-to-business transactions. For domestic customers, you can include a reasonable late payment clause in your terms and conditions, but you cannot use the statutory 8% + base rate. A common approach is to state that late payments will incur interest at 3-4% above base rate, which is generally considered fair for consumer contracts.

Do I have to warn the customer before charging interest?

Legally, no — the Act gives you an automatic right to charge interest on overdue commercial debts. However, in practice, warning the customer is more effective. Most people pay when they realise interest is building up. Mention your late payment terms on the invoice itself, and reference them in your reminder emails.

Will claiming interest damage my relationship with the customer?

If a customer consistently pays late, that relationship is already damaged — on your side. Asserting your rights is professional, not aggressive. Many tradespeople find that once they start mentioning statutory interest in their reminders, customers start paying on time. You do not always need to actually collect the interest — the mention of it is often enough.

Can a customer's contract override the statutory interest rate?

A contract can include different payment terms, but it cannot remove your right to claim interest entirely. If a contract offers a "substantially lower" remedy than the statutory interest, you can challenge it as unfair and fall back on the statutory rate. See gov.uk's guidance for details.

How long can I claim late payment interest for?

You can claim statutory interest for up to 6 years from the date the debt became overdue. The interest continues to accrue until the debt is paid in full. For very old debts, the Limitation Act 1980 sets a 6-year limit for bringing a court claim.

Start protecting your cash flow

Try InvoiceAdept free — automatic reminders, card payments, and professional invoices that make it easy for customers to pay on time. Use our late payment calculator to check what you are owed on any overdue invoice.