Late payments: your rights and how to chase them

Late payments are one of the most frustrating parts of running a business. You've done the work, delivered the goods, sent the invoice, and then nothing. Your customer goes silent, your cash flow dries up, and you're left wondering what to do.

Fortunately you have legal rights, and there are practical steps you can take. This guide explains what counts as late, what you're legally entitled to do about it, and how to protect your cash flow while you chase the money.

What counts as a late payment?

A payment is legally overdue once it passes your agreed due date. If you haven't agreed on a due date, the law considers an invoice overdue after 30 days.

The due date itself depends on what you've set:

• Net 10, 15, or 30 means payment is due 10, 15, or 30 days after the invoice date
• A specific date (e.g., "due 15th of the following month") is also fine
• Payment in advance means you should receive it before delivering goods or services

Whatever you choose, make sure it's clearly stated on every invoice. Ambiguity about when payment is due won't help if you need to chase it later.

Your legal rights on late payments

You have more legal protection than many business owners realise. Here's what you're entitled to:

Statutory interest

You can legally charge interest on overdue B2B invoices. The statutory interest rate is the Bank of England base rate plus 8% – currently around 13-14% depending on when the base rate changes. You can charge this automatically without needing to ask the customer's permission.

You're also entitled to claim reasonable costs for chasing the debt (administration costs, letters, etc.), up to a set amount depending on the invoice value. For invoices under £1,000, you can claim up to £40; for £1,000-£10,000, up to £70; for over £10,000, up to £100.

Late payment legislation

The Late Payment of Commercial Debts (Interest) Act 1998 is your legal backbone. It gives you the right to charge interest and recover debt collection costs. If you're dealing with a larger company that's deliberately delaying payment, you have stronger protections. It can even count as unfair contract terms.

What are the options to chase a late payment

When a payment goes overdue, don't wait. The sooner you act, the more likely you are to get paid.

Send a payment reminder

Your first step is a polite but direct message. Call or email your customer and ask for an update. Sometimes it's a simple oversight, they've misfiled the invoice or there's a query they forgot to mention.

Be specific: mention the invoice number, amount, and original due date. Keep the tone professional but friendly. You don't want to damage a relationship if this is a one-off.

Issue a formal notice

If the gentle reminder doesn't work, escalate to a formal notice. This is where you make it clear you're serious about getting paid.

Write a letter (email is fine) that:

• States the invoice number, date, and amount

• Clearly states the original due date

• Gives them a final deadline to pay (usually 7-14 days)

• Mentions that you'll charge statutory interest from the original due date

• States you may pursue legal action or use a debt collection service if they don't pay

This formal notice creates a paper trail and often prompts payment from customers who've been ignoring informal requests.

Charge statutory interest

If you haven't already, start charging statutory interest from the original due date. Calculate it clearly and explain it on a revised invoice or statement. Seeing the interest clock ticking often motivates faster payment.

You can also add your reasonable debt collection costs (the amounts mentioned earlier: £40-£100 depending on invoice size).

Use a debt collection service or legal action

If formal notices don't work, you have options:

• Debt collection agencies will chase the debt on your behalf for a fee (usually a percentage of what they recover). This often works because customers take a third party more seriously than they take you.
• Small claims court (for debts under £10,000) is another option. You can represent yourself and don't need a lawyer. The process is formal enough that many debtors pay rather than face a court order.
• Solicitor's letter before action is the formal step before court. A solicitor writes a letter stating you'll proceed to court if payment isn't made. This often prompts settlement without needing to actually go to court.

How to prevent late payments

Prevention is always easier than chasing, so get your processes right from the start.

• Be clear on your invoices. Your due date should be obvious – not buried in terms and conditions. Use a clear statement like "Payment due by [date]" near the total.
• Make payment easy. The easier you make it to pay, the faster you'll get paid. Offer multiple payment methods: bank transfer, card, even digital wallets. Include your payment details clearly on the invoice.
• Follow up early. Don't wait until 60 days overdue to make a call. Send a gentle reminder a day or two after the due date passes. Often this catches honest mistakes before they become problems.
• Use payment terms strategically. If you know a customer tends to pay slowly, ask for shorter terms (net 10 instead of net 30). If you need cash upfront, offer a discount for payment in advance.

What to do if late payments are affecting your cash flow

Sometimes despite your best efforts, late payments pile up and squeeze your cash flow. You still need to pay your own bills while you're chasing money owed to you.

If late payments are creating a cash flow gap, working capital loans can provide a bridge while you pursue outstanding invoices. You borrow what you need to cover immediate costs, and repay once customers pay you.

For businesses with persistent late payment problems, invoice factoring or invoice discounting may offer a longer-term solution. These let you sell your unpaid invoices for immediate cash (usually 70-95% of the invoice value), and the factoring company chases the payment from your customer. It costs more than a loan, but it solves the cash flow problem entirely.

FlexiPay is another option if you just need a short-term buffer while you're waiting for invoices to clear. It gives you flexible access to credit without the commitment of a traditional loan.

FAQs

How long before a payment is legally overdue?

Once it passes your agreed due date. If you haven't specified a due date, the law considers it overdue after 30 days from the invoice date.

Can I charge interest on a late invoice?

Yes. You can charge statutory interest (Bank of England base rate plus 8%, currently around 13-14% as of current figures) automatically on B2B invoices. You can also claim reasonable debt collection costs: £40 for invoices under £1,000, £70 for £1,000-£10,000, and £100 for invoices over £10,000.

What if my own business is struggling to pay on time?

Contact your creditors and explain the situation. Most will work with you if you're transparent and offer a realistic payment plan. If you're stuck, the same financing options (working capital loans, FlexiPay) can help bridge the gap while you sort things out.

Related reading:

• Invoice factoring costs explained

• Invoice discounting vs factoring

• 5 ways to improve cash flow

Disclaimer

28/07/2026 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.