Late payment is the single biggest cash flow problem for UK trade businesses. The Federation of Small Businesses reports that 52% of payments to small businesses arrive late, with the average overdue period being 17 days past terms.
For a plumbing business owed £15,000 across three late invoices, those 17 days mean juggling supplier payments, delaying wages, or dipping into personal savings. It's not a minor inconvenience — it kills businesses.
The law is actually on your side. UK contractors have strong statutory rights when clients pay late. Most trade businesses don't know them. This guide explains what you're entitled to and how to use it.
The Late Payment of Commercial Debts (Interest) Act 1998
This act (and its 2013 amendment incorporating the EU Late Payment Directive) gives every UK business the right to charge interest and claim compensation when a business customer pays late.
Key point: This applies to business-to-business (B2B) transactions. If your customer is another business (a main contractor, property management company, commercial client), you have full statutory rights. For domestic customers (homeowners), the act doesn't apply — you'd need to use different recovery routes.
What you're entitled to
1. Statutory interest
You can charge interest on late invoices at 8% above the Bank of England base rate. As of 2026, with the base rate at 4.5%, that's 12.5% per year — or roughly 0.034% per day.
| Invoice amount | Daily interest at 12.5% | 30 days late | 60 days late |
|---|---|---|---|
| £1,000 | £0.34 | £10.27 | £20.55 |
| £5,000 | £1.71 | £51.37 | £102.74 |
| £10,000 | £3.42 | £102.74 | £205.48 |
| £25,000 | £8.56 | £256.85 | £513.70 |
The interest starts running from the day after the agreed payment date (or 30 days after the invoice date if no payment terms were agreed).
2. Fixed compensation
On top of interest, you're entitled to a fixed sum per invoice:
| Invoice amount | Fixed compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 – £9,999.99 | £70 |
| £10,000+ | £100 |
This is per invoice, not per customer. If you have three late invoices of £3,000 each to the same client, that's £210 in compensation (3 × £70).
3. Reasonable recovery costs
You can also claim the reasonable costs of recovering the debt — letters, phone calls, solicitor fees, credit reference agency checks. This must be "reasonable" but adds another layer of cost that incentivises the debtor to pay up.
When does the clock start?
If you've agreed payment terms (e.g., "payment due within 14 days"), interest starts the day after the due date.
If you haven't agreed specific terms, the law defaults to 30 days from either:
- The date the customer receives the invoice, or
- The date the goods/services were delivered — whichever is later
Best practice: Always state your payment terms clearly on your invoice. "Payment due within 14 days of invoice date" or "Payment due on completion." This removes ambiguity about when interest starts accruing.
Can customers override these rights in their contract?
They can try, but there are limits.
The act says that any contract term that tries to exclude or reduce your right to statutory interest is void unless it provides a "substantial remedy" for late payment. In practice, this means:
- A main contractor can't simply put "no interest on late payments" in their subcontract and expect it to stand
- If the contract offers an alternative late payment remedy, it must be fair and substantial
- If in doubt, the statutory right takes precedence
In the construction industry specifically, the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009) provides additional payment protections. More on this below.
Construction Act payment protections
If you're a construction trade business (which includes most trades — plumbing, electrical, roofing, decorating, scaffolding, etc.), the Construction Act gives you additional rights:
Right to interim payments
On any construction contract lasting more than 45 days, you have the right to payment at intervals — not just one final payment at the end.
Payment notices
The payer (your client) must issue a payment notice within 5 days of the payment due date, stating the amount they'll pay and the basis for calculating it.
Pay less notices
If the payer wants to pay less than the notified amount, they must issue a "pay less notice" before the prescribed period. If they don't, they must pay the full notified amount.
Right to suspend work
If payment isn't received by the final date for payment, and no valid pay less notice has been issued, you have the right to suspend performance of your obligations under the contract — after giving 7 days' written notice.
This is powerful. If a main contractor isn't paying you, you can legally stop work after following the proper notice procedure.
Adjudication
You have the right to refer any payment dispute to adjudication — a fast-track dispute resolution process where an independent adjudicator makes a binding decision, typically within 28 days. This is much faster and cheaper than going to court.
Practical steps when a client pays late
Step 1: Invoice promptly and clearly
The fastest way to get paid is to invoice the moment the work is done (or at agreed milestones). Include:
- Clear payment terms
- Your bank details
- A unique invoice number
- Itemised breakdown of work
Step 2: Chase early and systematically
| Days overdue | Action |
|---|---|
| 1 day | Automated reminder email: "Your invoice is now overdue" |
| 7 days | Phone call + email: "Checking if there are any issues with payment" |
| 14 days | Formal letter: "Notice of late payment — statutory interest will be applied" |
| 30 days | Final notice: interest and compensation charges detailed |
| 45 days+ | Letter before action (pre-court warning) |
| 60 days+ | Small Claims Court (up to £10,000) or County Court claim |
Step 3: Apply statutory interest and compensation
When you send your 14-day chase, include a calculation of the statutory interest owed and the fixed compensation amount. Many businesses pay at this point — they didn't know you had these rights, and the additional charges motivate action.
Example letter text:
"Invoice #1234 for £5,000 was due on 1 February 2026 and remains unpaid. Under the Late Payment of Commercial Debts (Interest) Act 1998, we are entitled to statutory interest at 12.5% per annum (currently £1.71/day) plus fixed compensation of £70. As of today, the total outstanding is £5,121.54. We request immediate payment to avoid further charges."
Step 4: Consider stopping work
If you're doing ongoing work for the same client and they're not paying, stop starting new jobs for them. For construction contracts, you can formally suspend work under the Construction Act (7 days' written notice required).
Step 5: Escalate
- Adjudication (construction contracts): 28-day decision, typically £3,000-5,000 in costs, enforceable
- Small Claims Court (debts up to £10,000): file online at Money Claim Online, £115-455 court fee, no solicitor needed
- County Court (debts over £10,000): more formal, consider instructing a solicitor
- Statutory demand (debts over £5,000): a formal demand for payment that's a precursor to winding-up proceedings. The nuclear option — but effective for persistent non-payers
Payment terms to put on your invoices
| Your situation | Recommended terms |
|---|---|
| Domestic customer (homeowner) | Payment on completion (collect with Muster Pay at the job) |
| Small commercial (under £5K) | 14 days from invoice date |
| Medium commercial (£5-25K) | 14-30 days, staged payments |
| Large commercial / main contractor | 30 days, with Construction Act protections |
| Subcontract work | Match main contract terms, minimum 30 days |
Never accept 60 or 90-day terms unless the contract value justifies it and you can afford the cash flow impact. Some main contractors try to impose 90 days — push back. The Prompt Payment Code (voluntary) asks signatories to pay within 30 days.
How to stop late payments before they start
The best approach to late payment is preventing it:
- Collect deposits — 25-50% upfront for domestic work, staged payments for larger jobs
- Invoice immediately — the day the work is done, not a week later when you're back in the office
- Make payment easy — card, bank transfer, Apple Pay at the job site. Remove friction
- Automate chasing — set up automated payment reminders at 1, 7, and 14 days overdue
- Credit check new clients — for larger commercial contracts, check their payment history
- Clear terms in writing — state payment terms on your quote AND your invoice
How Muster helps you get paid faster
Late payment is a cash flow problem, and Muster attacks it from multiple angles:
- Muster Pay — take card, bank transfer, or Apple Pay at the job site. Customer pays on completion, money in your account
- Automatic invoicing — generate and send invoices from the job record, the day the work is done
- Payment reminders — automated email reminders at overdue intervals you set
- Payment tracking — see at a glance who owes you what, how overdue, and total outstanding
- Customer portal — customers can view and pay invoices online anytime
The result: more money collected at the point of job completion, faster payment for invoiced work, and less time spent chasing.
Book a demo and see the payment workflow in action.