Late payments and what you can do about them

Blogs 14 Feb 2020

Steps you can take to claim late payments and discourage it from happening again.

Being paid late and not knowing when payments are going to come in is one of the most challenging and frustrating issues affecting small businesses and self-employed people.

When just you’re starting out, it’s easy to be so keen to make a good impression and want to build lasting business relationships that you let late payments slide, but over time this adds up and affects your bottom line.

Our report Time to Act, highlighted small businesses in the UK are owed on average £6,142, mostly by larger firms not paying them for goods and services on time.

Not being paid on time has grave consequences, 37% of FSB members have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% cite a slowdown in profit growth.

But you’re not alone – because this problem is so prevalent amongst small and medium businesses, there are laws in place to protect companies, and there are actions that you can take to claim payments and discourage it from happening again.

Agree a set payment date

It is good practice to ensure that you always agree both payment terms and dates before starting work, preferably in a contract signed by both parties.

Under UK law, payments for goods and services provided to the public sector must be made within 30 days, and all payments for goods and services provided to the commercial sector must be made within 60 days.

However, even if you forgot to agree a payment date when you first made the deal, you are still protected.

The government considers payments to be late 30 days after either the customer receives the invoice; or 30 days after the company has delivered the goods or provided the service to its client.

What to do if a payment is late

The first thing to do if a payment is late is to send your customer another invoice. The idea is to prompt and remind the client to pay, and after 30 days has passed, you are legally allowed to charge statutory interest on top of the original invoiced amount.

The government defines statutory interest as being 8% plus the Bank of England (BoE) base rate for business-to-business transactions. But please note that if you have already listed a different interest rate in an existing contract, you will not be able to change that and charge the statutory interest rate instead.

On the day you decide to send out the second invoice, you need to calculate the accrued interest.


Let’s say that Company A is now 50 days late in paying your invoice of £1,000.

If we take the BoE base rate as 0.5%, the calculation should be as follows:

8% of £1,000 = £80
0.5% of £1,000 = £5
£80+£5= £85 (this is the annual interest)
£85 divided by 365 days = 23p a day
50 days x 23p = £11.50 in interest

Your new invoice should say: £1,011.50

On top of charging statutory interest, you are also permitted to charge the customer a set sum for the cost of recovering the late payment, but this is dependent on the value of the debt, and you can only charge this set sum once.   

How to start a debt recovery claim

If the client still doesn’t pay the owed amount, you can then take action. The good news is that small businesses don’t need to get a lawyer at this point.

Under UK law, anyone who is owed money can make a statutory demand for the amount owing, but the demand must be made when the debt is less than six years old, and it must be served in person.

Once the debtor receives a statutory demand for money, they must either pay the amount within 21 days, or make an agreement with you about how they will pay.

Next steps

If they still refuse to pay, then you have two options:

  • If the amount owed is less than £750, then you can apply to bankrupt or “wind up” the debtor’s company, but this has to be done within 4 months of the debtor receiving the statutory demand.
  • If the amount owed is more than £5,000, then you can submit a bankruptcy petition to the court

At this point, it would be wise to allow a third party to handle the issue for you, such as a solicitor, third party mediation service or other advisory service.

Take back control of your cash flow

It’s time to get the money you’re owed thanks to FSB Debt Recovery. Step-by-step guidance on chasing late payments, 24/7 support, free DIY template letters and clear, discounted legal costs.

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