Chasing unpaid invoices? Here’s what British entrepreneurs need to know

If you’re running a business and someone hasn’t paid you (whether it’s a customer, client, or another business), you’re not alone.

Thousands of UK business owners face this problem every year, and it can quickly put a strain on your finances.

Why late payments hurt so much

Late payments don’t just slow down your cash flow; they can seriously threaten your business.

• A widespread problemA 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: Delinquencies cost the UK economy an estimated £11 billion per year and are linked to around 14,000 business closures – that’s roughly 38 businesses closing every day.
• Cash flow tension: Non-payment doesn’t just affect your current balance; it can prevent you from hiring, investing or expanding. In fact, 44% of businesses say delays are becoming more common, with payment delays now averaging 32 days.

“Late payments have become one of the biggest risks faced by SMEs today. The challenge is not just getting the money back, but also the disruption to daily operations that can be devastating,” says Great Hamzah, corporate law lawyer at the East of England-based firm Hegarty.

What are your options if you’re chasing an unpaid invoice?

First things first: keep it friendly

Before taking legal action, start with a human approach.

1. Send a reminder: People sometimes forget: it’s easy to do. A polite email or message can often do the trick.
2. To achieve in writing: If payment has still not been made, you must follow this up in writing. Keep track of everything as this can be crucial later.
3. Offer a payment plan: If the client is really struggling, agreeing to installment payments may help you get paid faster and avoid legal fees.
4. Call a lawyer: If no progress is made, contact an attorney. They can send a formal letter demanding payment, which often prompts debtors to take action.

“Sometimes a letter from a lawyer is enough to show that you mean business. It’s a formal step that tells the debtor that this isn’t going away, and often results in a quick resolution,” explains Isabella Green, dispute resolution lawyer at Hegarty.

What if you are ignored?

If your reminders are ignored, it’s time to move on:

• Proceedings before the subdistrict court. You can apply for one Ruling of the subdistrict court judge (CCJ). If the debtor still does not pay, you may be able to call in a bailiff (bailiff).
• Legal requirement. For business-to-business debt, this is a formal 21-day warning. If payment is not made, you could start liquidation proceedings, a serious legal procedure that the company could be forced to do liquidation.

These options are powerful, but must be used carefully, especially if you want to maintain a long-term business relationship and are concerned about costs.

Small Claims Court: Is It Worth It?

If you’re looking for less than $10,000, the Small Claims Court is often the best route.

However:

• Legal costs are generally not recoverable.
• Solid documentation is crucial. Contracts, invoices and written communications can help prove your case.

“Too many companies rely on goodwill rather than solid contracts,” adds Hegarty’s Isabella Green. “It’s not just good practice to have clear terms from the start – it’s your safety net.”

Can you claim interest on the debt?

Yes, and it can yield more than you expect.

• The Late Payment of Commercial Debts Act allows an interest rate of 8% above the Bank of England base rate in B2B cases.
• Contractual interest means that your own terms may include a higher rate depending on what has been agreed.

Don’t forget to check your contracts. You may 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 stress, delays and loss.

• Draw up clear general terms and conditions. Make an overview of payment terms, the consequences of missed deadlines and any late payment fees. This helps reduce the room for disagreement.
• Ensure watertight contracts. A good contract defines responsibilities, deadlines and termination rights. That last point is crucial if a client becomes a repeat offender.

If you are currently dealing with a non-paying customer, take timely action and do not hesitate to seek professional advice.

As Isabella Green puts it, “The sooner you act, the better your chances of getting back what you are owed and protecting your business from lasting damage.”