Late payment is one of the most common problems small UK businesses face, and one of the least understood. Most business owners don’t realise how much legal leverage they already have, or how many practical habits can cut down how often it happens in the first place.
This guide covers what you’re entitled to claim under UK law, how to prevent late payment before it starts, and what to do when an invoice is already overdue — for both sole traders and limited companies.
Your Legal Rights on Late Payment
Under the Late Payment of Commercial Debts (Interest) Act 1998, any UK business owed money by another business is automatically entitled to charge statutory interest on a late payment — currently 8% above the Bank of England base rate — even if the contract or invoice doesn’t mention it. You can also claim a fixed compensation fee on top: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. This applies regardless of business type, so a sole trader has exactly the same statutory right as a limited company.
If no payment term is agreed in the contract, the default under the Act is 30 days from the invoice date (or from delivery of the goods or services, if later). Businesses are free to agree shorter or longer terms in writing, but the statutory default only kicks in when nothing else has been agreed.
Preventing Late Payment Before It Starts
- Set clear written terms. State the payment period, due date, and accepted payment methods on every invoice and in any contract or terms of business, so there’s no ambiguity to exploit.
- Invoice promptly. Send the invoice as soon as work is complete or goods are delivered rather than batching invoices at the end of the month — every day of delay is a day added to the payment cycle.
- Chase before the due date, not just after. A brief, polite reminder a few days before payment is due reduces the number of invoices that slip into being late in the first place.
- Check new clients before extending credit. A quick credit check or a look at a prospective client’s payment practices (large companies are required to publicly report these under the Payment Practices Reporting regime) can flag a slow payer before you’ve taken on the work.
- Consider deposits or staged payments. For larger jobs, taking a deposit upfront or invoicing in stages reduces how much is ever outstanding at once.
- Retention of title. For businesses supplying goods, a retention of title clause means ownership doesn’t transfer until payment clears — useful leverage if a customer becomes insolvent before paying.
What to Do When an Invoice Is Already Overdue
- Send a polite but firm reminder as soon as the due date passes, restating the amount owed and the original terms.
- Follow up by phone, not just email, if the reminder goes unanswered — a conversation is harder to ignore than an inbox message.
- Apply statutory interest and compensation if payment still doesn’t arrive — you’re entitled to add this to what’s owed under the 1998 Act, and stating this clearly often prompts faster payment on its own.
- Use the Small Business Commissioner’s free service if you’re dealing with a larger business and the invoice remains unresolved — it can help mediate and resolve disputes without going to court.
- Money Claim Online (MCOL) is the next step for a debt that’s genuinely stuck. It’s a low-cost, largely online small claims process, with court fees scaling with the size of the claim, and many overdue invoices are settled the moment a claim is formally issued.
Limited Company and Sole Trader Perspectives
Limited company: A 6-person marketing agency invoices a large retail client £8,000 for a project, with 30-day terms stated on the invoice. When payment is 20 days late, the agency sends a written reminder citing the Late Payment of Commercial Debts Act and adding statutory interest plus the £70 compensation fee. Payment arrives within a week — the client settles rather than let the balance grow further under statutory interest.
Sole trader: A freelance graphic designer working directly with small local businesses builds a habit of invoicing on the day work is delivered, with a reminder sent three days before the 14-day payment term is up. Late payments become rare, and on the one occasion a client is 40 days overdue, Money Claim Online resolves it without needing to go further.
Key Takeaways
- Every UK business — sole trader or limited company — already has the legal right to charge statutory interest and a fixed compensation fee on late B2B payments, whether or not this is written into the contract.
- The 30-day default payment term only applies where no other term has been agreed in writing.
- Prevention — clear terms, prompt invoicing, early reminders — does more to protect cash flow than any recovery process after the fact.
- The Small Business Commissioner and Money Claim Online are both low-cost routes for invoices that remain unresolved after direct contact has failed.
This article is for general guidance only and does not constitute legal advice. Figures and processes are correct as of August 2026 and may change — check GOV.UK or speak to a professional adviser about your specific circumstances.