Set clear payment terms from the outset
The most effective way to reduce late payment is to agree payment terms clearly before work begins. Your invoices and contracts should state payment terms explicitly, typically 30 days from invoice date, 14 days, or end of month plus 30 days. Under the Late Payment of Commercial Debts (Interest) Act 1998, if you have not agreed terms, the statutory default is 30 days.
Including your payment terms on every invoice, your website, and any written quotation or engagement letter reduces the chance of disputes arising over when payment is due.
A step-by-step chasing process
Consistent, professional follow-up outperforms occasional aggressive chasing. Build a structured escalation process with clear timing and communication at each stage.
- Day 1 to 3 after due date: polite reminder email referencing the invoice number and amount
- Day 7 to 10: follow-up call to accounts payable, confirm receipt of invoice
- Day 14 to 21: formal letter or email stating intention to add statutory interest
- Day 30: letter before action (LBA) stating intention to pursue through the courts
- Day 30+: small claims court (below £10,000) or County Court (above £10,000), or debt recovery agency
Statutory interest on late payments
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can charge statutory interest on overdue B2B invoices at 8% above the Bank of England base rate from the date payment was due. You can also claim a fixed late payment compensation charge of £40, £70 or £100 depending on the invoice value.
Many businesses do not pursue statutory interest, but referencing it in your chasing correspondence can encourage faster payment without the need to actually apply it.
When to consider invoice finance
If late payment is a persistent problem, invoice finance can protect your cash flow regardless of how long your customers take to pay. By advancing up to 90% of your invoice value as soon as the invoice is raised, invoice finance removes your dependency on customer payment behaviour.
Frequently Asked Questions
Can I charge interest on overdue invoices?
Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses can charge statutory interest of 8% above the Bank of England base rate on overdue B2B invoices, plus a fixed compensation charge.
What is a letter before action (LBA)?
A letter before action formally notifies a debtor of your intention to pursue legal proceedings if payment is not made within a specified period, typically 7 to 14 days. Sending an LBA is a required step before commencing court proceedings under the pre-action protocols.
When should I use a debt collection agency?
A debt collection agency can be used when your own chasing has not produced a result and the amount owed justifies the cost. Agencies typically charge a percentage of the recovered amount, often 15 to 25%, so the decision depends on invoice size.
Does chasing invoices damage customer relationships?
Handled professionally, no. Most businesses respect a structured, polite credit control process. Aggressive or erratic chasing is more likely to cause friction than a consistent, professionally communicated process.