If you’re running a business and someone hasn’t paid you – whether it’s a client, customer, or another business – you’re not alone.
Thousands of UK business owners face this issue every year, and it can quickly put your finances under pressure.
Why Late Payments Hurt So Much
Late payments don’t just delay your cash flow; they can seriously threaten your business.
- A Widespread Problem: A staggering 77% of UK SMEs are currently owed money by late-paying customers, with the average unpaid amount ranging from £18,000 to £22,000.
- Economic Damage: Late payments cost the UK economy an estimated £11 billion each year and are linked to around 14,000 business closures – that’s roughly 38 businesses shutting down every day.
- Cash Flow Strain: Non-payment doesn’t just impact your current balance – it can hold you back from hiring, investing, or expanding. In fact, 44% of companies say delays are becoming more frequent, with payment lags now averaging 32 days.
“Late payments have become one of the biggest risks facing SMEs today. The challenge isn’t just recovering the money, it’s the disruption to day-to-day operations that can be devastating,” says Hamzah Ajaib, corporate law solicitor at East of England based firm, Hegarty.
So, what are your options when you’re chasing an unpaid invoice?
First Things First: Keep It Friendly
Before jumping into legal action, start with a human approach.
- Send a Reminder: People sometimes forget, it’s easily done. A polite email or message can often do the trick.
- Reach Out in Writing: If payment still isn’t made, follow up in writing. Keep a record of everything as it could be crucial later.
- Offer a Payment Plan: If the client is genuinely struggling, agreeing to staggered payments might get you paid faster, and avoid legal costs.
- Call a Solicitor: If no progress is being made, speak to a solicitor. They can issue a formal letter demanding payment, which often jolts debtors into action.
“Sometimes a solicitor’s letter is enough to show you mean business. It’s a formal step that tells the debtor this isn’t going away, and that often results in swift resolution,” explains Isabella Green, dispute resolution solicitor at Hegarty.
What If You’re Being Ignored?
If your reminders are being ignored, it’s time to pursue matters further:
- County Court Proceedings. You can apply for a County Court Judgment (CCJ). If the debtor still doesn’t pay, you may be able to instruct enforcement agents (bailiffs).
- Statutory Demand. For business-to-business debts, this is a formal 21-day warning. If payment isn’t made, you could start winding-up proceedings, a serious legal process that can force the business into liquidation.
These options are powerful, but should be used carefully, particularly if you want to preserve a long-term business relationship and have concerns about costs.
Small Claims Court: Is It Worth It?
If you’re chasing less than £10,000, the Small Claims Court is often the best route.
However:
- Legal costs are usually not recoverable.
- Solid documentation is crucial. Contracts, invoices, and written communication can help in proving your case.
“Too many businesses rely on goodwill instead of robust contracts,” adds Isabella Green from Hegarty. “Having clear terms from the start is not just good practice – it’s your safety net.”
Can You Claim Interest on the Debt?
Yes, and it might add up to more than you expect.
- The Late Payment of Commercial Debts Act allows for 8% interest above the Bank of England base rate in B2B cases.
- Contractual Interest means your own terms might include a higher rate, depending on what’s agreed.
Remember to check your contracts. You might be entitled to more than just the invoice total.
How to Protect Yourself in the Future
Prevention is almost always cheaper than recovery. Investing in the right documents and legal advice can save you from stress, delays, and loss.
- Draft Clear Terms and Conditions. Set out payment timelines, consequences for missed deadlines, and any late-payment charges. This helps reduce the scope for disagreement.
- Have Watertight Contracts. A good contract defines responsibilities, deadlines, and rights of termination. That last point is critical if a client becomes a repeat offender.
If you’re currently struggling with a non-paying customer, take action early and don’t hesitate to get professional advice.
As Isabella Green puts it: “The earlier you act, the better your chances of recovering what you’re owed, and protecting your business from lasting damage.”
