Last reviewed 9 September 2026
Late payment is a persistent problem for small and medium sized businesses, and the cost is rarely just the invoice. It is the management time, the cash flow gap and the awkwardness of chasing a customer you would like to keep.
The good news is that a disciplined process recovers most debts long before anyone issues proceedings. Court is available and effective, but it works best as the visible end of a credible escalation rather than an opening move.
This guide explains the usual route in England and Wales. It is general information only and you should take advice on your own situation, particularly before starting or defending court proceedings.
Get the paperwork right first
Before chasing, check you can evidence the contract, what was delivered and when, the agreed price and payment terms, and that the invoice was addressed to the correct legal entity. Invoicing a trading name rather than the limited company causes real problems later.
Terms and conditions that were properly incorporated before the work started are what allow you to charge interest, recover costs and set out a clear payment date. Terms printed on the back of an invoice sent afterwards usually are not incorporated at all.
Internal credit control
A simple, consistent ladder works: a polite reminder on the due date, a firmer email at seven days with a copy invoice and proof of delivery, a phone call to the person who actually authorises payment at fourteen days, then a formal notice from a director.
Call as well as email. Most disputes surface only on the phone, and finding out at day fifteen that there is a query about the delivery is far better than discovering it three months later.
Interest and compensation on late payment
For most business to business contracts, legislation on late commercial payment implies a right to statutory interest and fixed sum compensation where the contract does not provide a substantial contractual remedy of its own. Many businesses never claim it.
Setting out the interest and compensation position in a chasing letter changes the economics for the debtor and often prompts payment. Check the current statutory rate and fixed sums before quoting figures, and set them out clearly on the statement of account.
The letter before claim
If internal chasing fails, the next step is a formal letter before claim. Court rules expect the parties to exchange information and try to resolve matters before proceedings, and a letter that sets out the debt, the documents relied on, the interest claimed and a reasonable deadline for response is the standard step.
A well drafted letter before claim from a solicitor recovers a high proportion of genuinely undisputed debts, because it signals that proceedings will follow and puts the debtor's cost exposure in front of them.
Court claims and what to expect
Undisputed money claims can be issued online, and if the debtor does not respond a judgment in default may be entered. Where the claim is defended it is allocated to a track according to value and complexity, and a genuine dispute about quality or scope changes the exercise entirely.
Court fees are payable on issue and, if successful, are usually recoverable along with interest. Consider whether the debtor can actually pay before spending money on proceedings, because a judgment against an empty company is worth very little.
Enforcement and prevention
A judgment is not payment. Enforcement options include instructing enforcement agents, an attachment of earnings for individuals, a third party debt order against a bank account and a charging order against property. Choosing the right one depends on what the debtor owns.
Prevention is cheaper than recovery. Run credit checks on new accounts, set and review credit limits, take deposits or stage payments on larger work, use retention of title wording where you supply goods, and invoice promptly with clear payment terms and the correct entity details.
Key points
- Check the entity, the contract and the delivery evidence before chasing.
- A consistent internal escalation ladder recovers most debts.
- Statutory late payment interest and compensation are widely under claimed.
- A letter before claim is the expected step before proceedings.
- Assess whether the debtor can pay before issuing a claim.
- Credit checks, deposits and clear terms prevent the problem recurring.
Frequently asked questions
- How long do I have to recover a debt?
- Simple contract debts in England and Wales are generally subject to a six year limitation period running from when the cause of action arose, though acknowledgement or part payment can affect the position. Take advice if a debt is approaching that age.
- Can I charge interest on a late invoice?
- Usually yes. Either your contract provides for interest, or the late commercial payment legislation implies a right to statutory interest and fixed sum compensation for most business to business debts. Check the current rate before stating a figure.
- What is a letter before claim?
- A formal pre action letter setting out what is owed, why, the documents relied on and a deadline to respond. Court rules expect it, and it resolves a significant proportion of undisputed debts on its own.
- What if the customer disputes the invoice?
- Then it is a contract dispute rather than a debt collection exercise, and the right route is usually negotiation or mediation with legal input on the underlying contract. Issuing a debt claim over a genuinely disputed invoice can backfire.
- Is a statutory demand a good idea?
- It is a serious step with insolvency consequences and should not be used where the debt is disputed. Take advice before serving one, because misuse can lead to the demand being set aside and adverse costs.