Late Payment in the UK: What Legal Rights Do Creditors Have?

Late payment harms cash flow and slows growth. Across the UK, many suppliers and service providers wait longer than agreed for invoices to be settled. Every day, costs still need to be paid, and plans for hiring or investment may be put on hold. Knowing your legal position helps you act early and keep your business steady.

UK law recognises that long delays can cause real damage. It gives creditors a set of tools that support fair outcomes without making disputes worse. These sit alongside good practice in debt recovery and collection, such as clear terms, timely reminders, and respectful communication. Used together, they protect your position while helping to keep trading ties in good shape.

This guide explains the legal rights you can rely on when invoices go overdue. It also sets out practical steps to enforce payment, and simple habits that reduce the risk of late payment. The goal is to help you make calm, confident choices that fit the value of the debt and the strength of the relationship.

Key Legal Rights Creditors Can Rely On

When an invoice is late, you do not have to accept an open-ended delay. UK law gives businesses clear rights that can be used on their own or together. The aim is to encourage prompt settlement, cover your costs of chasing, and provide a fair route to court if that becomes necessary.

Statutory interest and fixed compensation

Under the Late Payment of Commercial Debts (Interest) Act 1998, most business-to-business invoices attract statutory interest once they are overdue. The rate is set above the Bank of England base rate so the debtor pays a meaningful premium for paying late. The law also lets you add a fixed sum to cover recovery costs. If your real costs are higher, you may claim reasonable additional costs.

These rights apply even if your contract is silent on interest. They exist to level the playing field for smaller suppliers who cannot afford to carry slow payers. Stating them on quotes and invoices reminds customers that delay has a price and can speed up payment.

Contractual terms that support recovery

Strong contracts make legal recovery smoother. Clear payment due dates, the right to charge contractual interest, and the right to suspend services if bills are not paid all help. So do clauses that set out how disputes are raised, how credit limits work, and when goods or digital access can be withheld. These terms guide behaviour and reduce arguments when things go wrong.

If your written terms conflict with the statutory rights, the law may step in to ensure fairness. In most cases, well-drafted terms will sit alongside the Late Payment rules. You can then choose which path to use in a given case.

The right to set off and allocate payments

Where both sides owe each other money, set off lets you net the balances so only the difference remains due. You may also decide how to allocate part payments across old and new invoices if your contract allows. Used carefully, these tools stop aged balances from being hidden by fresh orders and keep your ledger tidy.

Access to the courts for a binding judgment

If reminders fail, you can bring a claim in the County Court using the simple online process. A court judgment confirms the debt and can include interest and costs. With that judgment, a range of enforcement methods becomes available, which are explained in the next section.

How Creditors Can Enforce Payment

Enforcement should be calm, planned, and proportionate. Start with accurate records and a short timeline of what has happened. Keep copies of the contract, the invoice, the delivery note, emails, and your statements. Good records make your case clear and reduce the risk of delay if the matter goes to court.

A typical path begins with a final reminder or a letter before action. This letter explains what is owed, sets a strict deadline, refers to interest and costs, and warns that court action may follow. Many late payers respond at this stage because the letter shows you are organised and serious.

If payment still does not arrive, you can issue a County Court claim. If the debtor does not defend, the court may enter a County Court Judgment. With judgment, you can ask enforcement agents to take control of goods, apply for an attachment of earnings if the debtor is an individual, or seek a third-party debt order that directs money held by a bank to you. For larger debts, a charging order can secure the balance against property owned by the debtor.

Balancing Legal Rights with Commercial Relationships

Most businesses want payment without losing a customer. That means using your rights in a way that is firm but fair. Early, open contact usually helps. Ask if there is a simple reason for the delay, agree a clear date for payment, and confirm it in writing. If part payment is possible now and the balance in stages, set a short plan with dates that you can monitor.

Be consistent with your policy so customers know you mean what you say. Apply interest and charges where you have said you will, but be ready to waive them if the customer pays quickly and you want to keep the relationship. Keep messages polite and factual. Avoid blame and focus on the next step.

If trust has broken down, limit future exposure. Move to advance payment terms or smaller credit limits until a track record of prompt payment returns. This protects cash flow without closing the door on future work.

Preventing Late Payment in Your Business

Prevention is better than cure. A few simple habits can reduce overdue invoices and the time you spend chasing. They also make any formal action faster because your paperwork is tidy and your terms are clear.

Clear onboarding and simple terms

State payment terms in writing before you start work. Confirm the price, due date, and what happens if payment is late, including interest and fixed recovery costs. Ask new customers to confirm the billing contact, the purchase order rules, and the correct address for electronic invoices. When the basics are right, invoices move faster through approval.

Use plain language across all documents so customers understand what is expected. Put the due date on the quote, the order confirmation, and the invoice. Mention your right to claim statutory interest under the Late Payment Act or a contractual rate. List accepted methods such as bank transfer or card. The aim is to remove excuses and make paying easy.

Smart invoicing and steady credit control

Invoice on the day the goods are delivered or the work is finished. Include the purchase order number, the contact person, and a clear breakdown of what was supplied. If your customer needs a timesheet or a delivery reference, attach it to the invoice so the approver has everything in one place.

Follow a simple chase routine. Send a polite reminder a few days before the due date, another on the day it falls due, and a firm note a week later. Mention that interest and costs may apply. Keep a log of calls and emails. Where possible, use software to send reminders and match payments. Automation saves time and reduces errors.

Risk checks, deposits, and safeguards

Run a basic credit check for new accounts and for existing customers who ask for larger limits. Set limits that fit the size of the customer and your own tolerance for risk. If the order is large or bespoke, ask for a deposit or stage payments. This shares the risk and helps your cash flow.

For ongoing contracts, consider retaining the right to pause services if invoices age beyond a set point. Keep that right in your terms and use it with notice. In parallel, train your team to spot early signs of strain, such as repeated promises to pay, requests to change terms, or sudden disputes over old invoices. Early action is cheaper than late action.

By building these habits into daily work, you will cut the number of overdue invoices. When late payment does occur, you will be ready to use your legal rights quickly and with confidence. That balance keeps cash moving, protects relationships, and supports steady growth.