Understanding Non Payment of Invoice Law UK

Facing an unpaid invoice is more than an inconvenience—it can undermine your company’s cash flow and long-term stability. If a client fails to settle their bill for goods or services rendered, it’s important to know your legal standing and what steps you can take.

This insightful guide sets out the non payment of invoice law UK, covering how you can recover outstanding invoices and prevent payment issues going forward.

Overview of the Non Payment of Invoice Law UK?

For businesses in the United Kingdom, several legal protections exist when dealing with late or non-paying customers. The key piece of legislation is the Late Payment of Commercial Debts (Interest) Act 1998, which applies to business-to-business transactions and sets out statutory rights for recovering late payments.

Late Payment of Commercial Debts (Interest) Act 1998 Explained

Non Payment of Invoice Law UK – This legislation gives you the right to charge interest and claim compensation on overdue invoices—a practical deterrent against late payment.

Key elements include:

• Statutory Interest: You’re entitled to add statutory interest to overdue amounts at a rate of 8% above the Bank of England base rate. This applies unless you have contractually agreed a different rate.
• Fixed-Sum Compensation: On top of interest, you can claim a fixed sum to cover your debt recovery costs:
  • £40 for debts up to £999.99
  • £70 for debts between £1,000 and £9,999.99
  • £100 for debts of £10,000 or more
• Reasonable Recovery Costs: If your costs of recovering the debt exceed the fixed sum, you may also claim reasonable additional costs, for instance, legal fees or debt collection agency charges.

No Written Contract? Still Protected

You do not need a written contract to be protected under the law. Agreements can be made verbally or established by ongoing dealings. If you can demonstrate that there was an agreement—by way of emails, messages, or evidence of work completed—you retain the right to payment. An invoice itself constitutes a formal request for payment and supports your claim.

How to Recover Unpaid Invoices: A Structured Approach

Recovering owed funds is best managed via a methodical process. Acting too hastily can strain valuable relationships, but waiting too long may jeopardise your business’s financial health. The steps below offer an effective, professional recovery approach.

Step 1: Friendly Payment Reminder

Often, missed payments are simply down to oversight. Start the process with a polite reminder.

• Action: Send a short, friendly email within a day or two of the invoice due date.
• Sample Wording: “Hello [Client Name], just a gentle reminder that invoice #[Invoice Number] was due on [Due Date]. Could you let me know if you have had a chance to process it? Please see the attached copy for convenience.”

Step 2: Formal Notice of Overdue Payment

If a week passes with no payment or reply, follow up more formally.

• Action: Send a firm email or make a phone call, clearly stating the invoice is now overdue. Attach the invoice again and restate your payment terms.
• Sample Wording: “Dear [Client Name], I am following up regarding invoice #[Invoice Number] for [Amount], which is now seven days overdue. Please let us know when we can expect payment.”

Step 3: Letter Before Action/Final Demand

Should the invoice remain unpaid after 14 to 30 days, move to a formal demand. This communication should make the consequences of non-payment clear.

• Action: Send a formal email or letter marked “Letter Before Action” or “Final Demand”.
• Content to Include:
  • Invoice details: number, amount, and due date
  • Reference to your statutory rights under the 1998 Act
  • Calculation of interest and compensation now payable
  • Your intention to pursue further action—court proceedings or debt recovery—if payment is not made within a set timeframe

Many clients pay at this stage, realising you are prepared to escalate the matter.

Step 4: Pragmatic Recovery Action

Should the debtor ignore your final demand, you have two primary courses of action.

Employing a Debt Collection Agency

A professional Debt Collection Agency can deal with the situation on your behalf, often on a fixed cost basis. Involvement from a professional agency adds urgency to your claim.

Starting a Court Claim

Alternatively, you can make a claim through the Money Claim Online (MCOL) service. This is suitable for undisputed invoices and is relatively straightforward.

• How it Works: Complete the relevant claim information online. The court then serves the paperwork to your debtor.
• Debtor’s Options: They have fourteen days to respond—either to pay, admit the debt and propose a payment plan, or dispute the claim.
• County Court Judgment (CCJ): If they do not respond or the case is settled in your favour, the court issues a CCJ against them. This can severely harm a company’s or individual’s credit rating.

If payment is still withheld after a judgment, you can request CCJ enforcement action, for example instructing bailiffs.

Very often, it is more direct to go straight to a proficient Debt Collection Agency as they can also administer Enforcement Action for you.

Preventing Non Payment of Invoices

The best way to avoid overdue or unpaid invoices is by putting robust measures in place.

1. Due Diligence

Before engaging new clients—especially for significant contracts—carry out basic checks. Review company credit reports and look into trading history or client reviews to spot potential warning signs.

2. Clear Written Agreements

A watertight contract serves as your main protection. Ensure contracts define:

• Exactly what you will deliver
• Payment terms and schedule (e.g., deposits, instalments, or payment timelines)
• How payment should be made (for instance, BACS or direct debit)
• Late payment clauses, specifying your right to claim interest and compensation

Having these terms in writing can prevent disputes down the line.

3. Prompt and Accurate Invoicing

Submit your invoice as soon as work is complete or as agreed. Double check that the invoice includes:

• Your business’s details and the client’s details
• A unique invoice number
• A precise description of what was supplied
• The total amount due and the payment deadline
• Your bank or payment details

Mistakes or missing information can lead to unnecessary payment delays.

4. Flexible Payment Options

Enable different ways for clients to pay—such as bank transfer, credit card, or direct debit—making payment as simple and convenient as possible.

Good understanding of non payment of invoice law UK, supported by a proactive approach, helps protect your business’s financial position. By staying professional and following clear steps, you can secure timely payments and reduce the risk of cash flow issues.