How to deal with late payments in the UK

Late payment is the biggest cashflow killer for UK freelancers and small businesses. According to the Federation of Small Businesses, 50,000 UK businesses close each year because of late payments. The average small business is owed £22,000 in overdue invoices at any given time.

You don't have to accept it. UK law gives you strong rights when clients pay late — including the right to charge interest and claim compensation. Here's how to use them.

Your rights under the Late Payment of Commercial Debts Act

The Late Payment of Commercial Debts (Interest) Act 1998 (amended 2013) gives you three automatic rights when a business client pays late:

1. Statutory interest

You can charge interest at 8% above the Bank of England base rate on any overdue amount. As of 2026, with a base rate around 4.5%, that's 12.5% per year.

Interest runs from the day after the payment due date. If your payment terms say Net 30, interest starts on day 31.

Example: A £3,000 invoice is 60 days overdue. Statutory interest = £3,000 × 12.5% × (60/365) = £61.64.

2. Compensation for recovery costs

On top of interest, you can claim a fixed sum for the cost of recovering the debt:

| Invoice amount | Compensation | |---------------|--------------| | Up to £999.99 | £40 | | £1,000 to £9,999.99 | £70 | | £10,000+ | £100 |

3. Reasonable recovery costs

If your actual recovery costs exceed the fixed compensation, you can claim reasonable costs on top. This covers things like debt collection agency fees, legal costs, or time spent chasing the payment.

Before things go wrong: prevention

The best way to deal with late payments is to prevent them. Set yourself up for success from day one.

Agree terms in writing before starting work. An email confirmation is fine: "Just confirming — I'll deliver X by Y date, and invoice for £Z on completion, with payment due within 14 days." This gives you a paper trail if there's a dispute.

Invoice immediately. Send the invoice the day you deliver. Every day you delay is a day added to your payment timeline. Coinvoice lets you send invoices in under 60 seconds with a payment link included.

Include a payment link. Make it as easy as possible for your client to pay. One-click card or PayPal payment converts far better than "please transfer to sort code XX-XX-XX." Our invoice generator includes payment details on every invoice.

Use shorter payment terms. Net 30 is standard, but Net 14 gets you paid faster. For new clients or small projects, there's nothing wrong with asking for payment on receipt.

Vet new clients. Before taking on a large project, check the client's payment history. You can use services like the Prompt Payment Code directory or simply ask other freelancers in your network.

When an invoice goes overdue: step-by-step

Day 1: Friendly reminder

Send a brief, polite email or message. Assume it's an oversight.

Coinvoice sends automatic reminders when invoices go overdue, so you don't have to remember to do this manually.

Day 7: Follow-up with the invoice attached

If you haven't heard back, send a second reminder with the invoice attached. Be direct but professional.

Day 14: Phone call

Email is easy to ignore. Pick up the phone. A direct conversation often resolves things faster — sometimes invoices genuinely get lost in someone's inbox. Be calm, professional, and direct. Ask for a specific payment date.

Day 30: Formal letter with interest notice

If the invoice is now 30 days overdue with no resolution, send a formal letter (email is fine) stating:

• The original invoice amount and due date
• That the payment is overdue by [X] days
• That you are entitled to charge statutory interest under the Late Payment of Commercial Debts Act 1998
• The interest amount accrued so far
• A final payment deadline (usually 7 days)
• That you will escalate to formal recovery if not paid by the deadline

This letter alone often gets results. Most businesses know about the statutory interest provisions and don't want the hassle of a formal dispute.

Day 45+: Escalation options

If the letter doesn't work, you have several options:

Mediation. A neutral third party helps you and the client reach an agreement. Cheaper and faster than court. The Small Business Commissioner offers a free complaints scheme for disputes with larger businesses.

Money Claim Online. For debts up to £100,000, you can file a claim through HMRC's Money Claim Online service. Court fees are based on the amount claimed — £35 for claims up to £300, £115 for claims up to £5,000. If the client doesn't respond within 14 days, you can apply for a County Court Judgment (CCJ), which damages their credit rating.

Debt collection agency. An agency will chase the debt for you, typically for 10–25% of the amount recovered. Only use reputable agencies registered with the Credit Services Association.

Write it off. Sometimes a debt isn't worth pursuing. If the amount is small and the client is unreachable, write it off and move on. The lost time and stress aren't always worth it. Use it as a learning experience for vetting future clients.

Protecting yourself long-term

• Request deposits or milestone payments for large projects
• Use a contract or engagement letter that specifies payment terms and late payment penalties
• Track all invoices and payments in one place so overdue amounts are immediately visible
• Build a cash reserve so one late payment doesn't put your business at risk
• Consider invoice factoring for large outstanding amounts — a factoring company pays you 80–90% of the invoice value upfront and collects from the client

Late payments are frustrating, but they're not inevitable. Clear terms, prompt invoicing, easy payment methods, and consistent follow-up solve most cases before they become problems.

Ready to send invoices with built-in payment links and automatic reminders? Get started with Coinvoice — free for up to 25 clients.