What To Do When A Customer Won't Pay An Invoice

Few things are more frustrating than doing the work, sending the invoice, and then hearing nothing. You might feel awkward chasing it at first, especially if the customer is someone you want to keep working with.

But unpaid invoices can put real pressure on your cash flow. Wages, suppliers, rent and subscriptions still need to be paid, even when your customer is dragging their feet.

The good news is that you don't need to jump straight to a heavy legal step. In many cases, a clear process - reminders, records, late payment interest, a letter before action and better future payment terms or business terms and conditions - can get things moving without burning the relationship.

What Should You Do First When An Invoice Is Overdue?

Start by checking your paperwork and sending a clear, calm reminder. A surprising number of unpaid invoices come down to admin errors, internal approval delays or a customer claiming they didn't receive the invoice.

Before you escalate, make sure you can show:

• The customer agreed to buy the goods or services, whether through a customer contract, quote or email approval.
• You delivered the goods or completed the work.
• The invoice was sent to the right person or business.
• The payment due date has passed.
• Your payment terms were agreed, or at least clearly communicated.

Then send a short email attaching the invoice again. Keep it polite, factual and easy to act on.

For example, you might say:

Hi Alex, I hope you're well. Invoice 1048 for £1,250 was due on 15 May and appears to be outstanding. I've attached another copy for ease. Could you please arrange payment by Friday, or let me know if there's any issue with the invoice?

If there's still no response, follow up by phone and take notes of what was said. If the customer promises to pay on a date, confirm it by email afterwards.

Keep a simple record of:

• Each reminder you sent.
• Who you spoke to and when.
• Any excuses or disputes raised.
• Any revised payment dates promised.
• Any partial payments received.

This record matters if you later need to charge interest, send a letter before action or show that you've acted reasonably.

Can You Charge Late Payment Interest In The UK?

Yes, if the debt is a business-to-business debt and the customer is late paying, you may be able to charge statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998. This usually applies where both you and your customer are acting in the course of business.

Statutory interest is 8% a year plus the Bank of England base rate. Because the base rate changes, you should check the current Bank of England base rate for the relevant period before calculating the final amount.

You may also be able to claim fixed compensation for the late payment:

• £40 for a debt of up to £999.99.
• £70 for a debt of £1,000 to £9,999.99.
• £100 for a debt of £10,000 or more.

If your reasonable recovery costs are more than the fixed compensation, you may be able to claim the difference as well.

Worked Example

Say Mike runs a small cleaning business in Manchester. He invoices a commercial client £3,000, payable within 14 days. The client pays 60 days late.

If the Bank of England base rate for the relevant period were 5%, the statutory annual interest rate would be 13%: 8% plus 5%.

The interest calculation would be:

£3,000 x 13% x 60 / 365 = £64.11

Because the debt is between £1,000 and £9,999.99, Mike could also add £70 fixed compensation. That means he could ask for £134.11 on top of the original £3,000.

If your customer is a consumer, different rules apply. You should be careful about adding charges unless your contract clearly allows them and the term is fair under the Consumer Rights Act 2015. If you're unsure whether your customer is acting as a business or a consumer, get advice before adding late fees.

When Should You Send A Letter Before Action?

You should send a letter before action when friendly reminders have failed and you're ready to show the customer that the debt is being treated seriously. It doesn't mean you're definitely going to court, but it does mean you're creating a formal paper trail.

A letter before action is usually the final written demand before legal proceedings. It sets out the debt, gives the customer a last opportunity to pay or respond, and explains what may happen if they don't.

The process depends on who owes you the money.

• If the debtor is a company, you should usually follow the Practice Direction on Pre-Action Conduct and Protocols. For a straightforward invoice debt, a reasonable response period is often around 14 days, but a more complex matter may need longer.
• If the debtor is an individual or sole trader, the Pre-Action Protocol for Debt Claims may apply. This is more detailed and usually gives the debtor 30 days to respond using the reply form.

This distinction catches a lot of small businesses out. A sole trader can look like a business customer in day-to-day dealings, but the debt protocol may still treat them as an individual debtor.

Before sending the letter, check whether the customer is actually disputing the invoice. If they say the work was defective, incomplete or not approved, the issue may be more than a simple non-payment problem. You can still respond firmly, but your letter should deal with the dispute rather than pretending it doesn't exist.

You should also check how old the invoice is. In England and Wales, a simple contract debt is generally subject to a 6 year limitation period under the Limitation Act 1980. Don't leave old debts sitting in the background for years, because delay can make recovery harder.

What Should A Letter Before Action Include?

A letter before action should include enough detail for the customer to understand the claim and decide whether to pay, dispute it or propose a payment plan. It should be clear, professional and accurate.

Templates can be a useful starting point, but they often miss details that matter, especially where the customer is a sole trader, there are multiple invoices or part of the debt is disputed. A lawyer should tailor the letter before you use it if the amount is significant or the relationship is sensitive.

Letter Before Action Outline

1. Your Details: State your business name, contact details and the person dealing with the matter.
2. Customer Details: Include the legal name of the customer, not just a trading name if you know it.
3. Invoice Details: List the invoice number, date, amount, due date and what the invoice was for.
4. Contract Or Order Details: Refer to the agreement, quote, purchase order, email approval or terms that support the debt.
5. Work Or Goods Provided: Briefly explain what you delivered and when.
6. Payment History: Note any part-payments, promises to pay or previous reminders.
7. Interest And Compensation: Set out any late payment interest or compensation you're claiming and how you calculated it.
8. Deadline To Respond: Give a clear deadline to pay or respond, using the right timeframe for the type of debtor.
9. Payment Instructions: Include bank details or another accepted payment method.
10. Next Steps: Explain that you may take further recovery action if payment isn't made or a proper response isn't received.

Keep the tone firm but not aggressive. Avoid threats you don't intend to follow through on. A well-drafted letter usually works better than an angry one because it gives the customer a simple choice: pay, explain the dispute or propose a sensible plan.

If you agree to a payment plan or debt collection agreement, put it in writing. Include the instalment amounts, dates, what happens if a payment is missed, and whether interest will continue to run.

What Are Your Legal Escalation Options If They Still Won't Pay?

If the customer still won't pay, your options depend on the amount owed, whether the debt is disputed, and who the customer is. The right next step for a £600 invoice isn't always the same as the right next step for a £30,000 unpaid account.

Common escalation options include:

• A Final Settlement Offer: Sometimes accepting a reduced amount or instalments is commercially better than spending more time chasing the debt.
• Debt Recovery Support: You can ask a lawyer or debt recovery provider to send formal correspondence and manage the next steps.
• Mediation Or Negotiation: If the customer disputes the work, a structured negotiation may be faster and cheaper than a claim.
• A Court Claim: For debts in England and Wales, you may be able to issue a county court claim. HMCTS fees and processes depend on the claim value and method used, so check the current court fee before filing.
• Insolvency Pressure: For an undisputed debt owed by a company, a statutory demand or winding-up route may be available in some cases. This is a serious step and should only be used with proper advice.

Before you escalate, ask yourself a few commercial questions:

• Is the customer likely to have the money to pay?
• Is the debt genuinely disputed?
• Do you have a signed customer contract, accepted quote or clear email trail?
• How much time are you prepared to spend recovering the debt?
• Would a negotiated payment plan protect your cash flow faster?

Don't ignore the relationship either. If this is a long-term client with a temporary cash flow issue, a structured payment plan may be the best outcome. If it's a repeat late payer who keeps pushing boundaries, firmer action may be what your business needs.

How Can You Stop The Same Problem Happening Again?

You can reduce the risk of unpaid invoices by tightening your payment terms before the next job starts. Clear terms don't guarantee every customer will pay on time, but they make it much easier to chase payment and recover what you're owed.

Your customer agreement, supplier terms, credit terms for wholesale customers or trading terms should deal with payment in plain language. Ideally, the customer should accept those terms before you start work, not after the invoice is overdue.

Payment Terms Checklist

• Deposit Or Upfront Payment: Ask for a deposit, booking fee or full payment before work starts where it makes sense.
• Clear Due Dates: Use specific payment periods, such as 7, 14 or 30 days from invoice date.
• Milestone Payments: For longer projects, break the fee into stages so you're not carrying all the risk until the end.
• Late Payment Interest: State whether you may charge statutory interest or contractual interest for late payment.
• Suspension Rights: Give your business the right to pause work or deliveries if invoices are overdue.
• Recovery Costs: Explain when the customer may need to cover reasonable recovery costs.
• Dispute Process: Require the customer to raise invoice disputes within a set period, and to pay any undisputed amount on time.
• Retention Of Title: If you supply goods, consider a clause saying ownership doesn't pass until payment is received.
• Personal Guarantees: For higher-risk company customers, consider whether a director guarantee is appropriate.

Also look at your internal process. Send invoices promptly, make sure the invoice matches the quote, and chase overdue accounts on a set timetable. Many small businesses improve cash flow just by having the same follow-up system every time.

For example, you might send a friendly reminder 2 days after the due date, a firmer reminder at 7 days, a phone call at 14 days, and a letter before action at 21 or 30 days depending on the customer and the amount owed.

Getting your terms right early helps you avoid awkward conversations later. It also gives your business a stronger position if a customer won't pay and you need to escalate.

Key Takeaways

• Start with the basics: check the invoice, agreement, delivery records and payment due date before escalating.
• For many business-to-business debts, you can charge statutory late payment interest at 8% plus the Bank of England base rate, plus fixed compensation.
• A letter before action is often the turning point, but the right process depends on whether the customer is a company, individual or sole trader.
• Keep careful records of reminders, phone calls, promises to pay and any dispute raised by the customer.
• If payment still doesn't arrive, consider commercial settlement, formal debt recovery, a court claim or specialist insolvency advice depending on the debt.
• Stronger payment terms, deposits, milestone billing and suspension rights can help protect your cash flow next time.

If you'd like help with your overdue invoice letters, payment terms, customer contracts or debt recovery options, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.