If a customer is 60 days late paying an invoice, your options range from a formal demand letter and charging statutory interest under the Late Payment of Commercial Debts Act 1998, through to mediation, debt collection, or county court action – but the right approach depends on the size of the debt and whether you want to keep the customer.
Late payment is not a minor inconvenience. It is someone else using your money without permission. And when you are a small business waiting on a significant invoice, it can mean the difference between making payroll and not. So let us be practical about what you can actually do.
Before You Escalate: The Basics
Before assuming the worst, rule out the simplest explanations.
Check the invoice was received. It sounds obvious, but invoices go to spam folders, get lost in accounts payable departments, or sit on someone’s desk waiting for an approval that nobody chased. A quick call or email to confirm receipt is not chasing payment – it is good administration.
Confirm the details are correct. A wrong purchase order number, a missing reference, or an invoice sent to the wrong contact can hold up payment for weeks in larger organisations. Their accounts team may have rejected it and nobody told you.
Check your own terms. Make sure you are counting from the right date. If your terms are 30 days from invoice date and you sent the invoice a week after completing the work, you might be less overdue than you think.
If you have confirmed the invoice was received, the details are correct, and the payment genuinely is 60 days overdue – it is time to act.
The Escalation Path
Step 1: Formal written reminder
Send a clear, professional email (or letter) stating the invoice number, amount, original due date, and that the payment is now overdue. Keep it factual, not angry. Ask for payment within seven days and request confirmation of when payment will be made.
This is not just politeness. Having a documented trail of communication is important if you need to escalate further.
Step 2: Phone call
If the written reminder gets no response within a few days, pick up the phone. A phone call is harder to ignore than an email, and it often uncovers the real reason for the delay. Perhaps they are having their own cash flow problems. Perhaps there is a dispute about the work. Perhaps the person who approves payments has been off sick.
Whatever the reason, a conversation gives you information. And information helps you decide what to do next.
Step 3: Formal demand letter
If the phone call does not resolve things, send a formal letter before action. This should state:
- The amount owed, including the original invoice reference
- That the payment is now significantly overdue
- That you intend to charge statutory interest (see below)
- That you will pursue legal action if payment is not received within 14 days
This letter does not commit you to anything, but it signals that you are serious. Many debts are settled at this stage simply because the customer realises you are not going to let it slide.
Step 4: Charge statutory interest
Under the Late Payment of Commercial Debts (Interest) Act 1998, you have the right to charge interest on late payments from other businesses. The rate is the Bank of England base rate plus 8%. You can also claim a fixed compensation amount: £40 for debts up to £999.99, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.
You do not need to have included this in your original contract. It is a statutory right. However, if your contract already specifies interest on late payments, the contractual rate applies instead.
Example: You are owed £8,000 and the payment is 60 days late. With a base rate of 3.75%, the statutory interest rate is 11.75%. Daily interest on £8,000 at 11.75% is approximately £2.58 per day – so after 60 days, that is roughly £155 in interest, plus £70 in fixed compensation. It is not a fortune, but it adds up, and the principle matters.
Step 5: Mediation
If the relationship is important to you – perhaps this is a long-standing customer or a significant portion of your revenue – mediation can be a sensible step before legal action. A neutral third party helps both sides reach an agreement. It is cheaper and faster than court, and it preserves the relationship better than a legal claim.
Step 6: County court claim
For debts under £10,000, you can use the Small Claims Court. For larger amounts, the county court process applies. You can file a claim online through Money Claims Online, and court fees start from around £35 for small debts.
A county court judgment (CCJ) against a business is serious. It appears on their credit file and can affect their ability to borrow or win contracts. The threat of a CCJ is often more powerful than the CCJ itself – many debts are paid between the filing of the claim and the hearing.
When to Use a Debt Collection Agency
A debt collection agency makes sense when:
- The debt is large enough to justify their fee (typically 5% to 15% of the debt, or a fixed fee for smaller amounts)
- You have exhausted your own collection efforts
- The customer is ignoring all communication
- You do not have the time or inclination to pursue it yourself
A reputable agency will handle the chasing, the phone calls, and the escalation. They know the pressure points. But check their credentials – look for members of the Credit Services Association (CSA) – and understand their fee structure before you engage them.
When to Write It Off
Sometimes the pragmatic choice is to accept the loss and move on. Consider writing off the debt if:
- The amount is small relative to the cost of pursuing it
- The customer has gone into administration or insolvency (you will be an unsecured creditor, which usually means getting very little back)
- You have spent more time and stress chasing it than the debt is worth
Writing it off does not mean doing nothing. Record the bad debt properly, claim any available tax relief, and – critically – learn from it for future dealings with that customer or similar ones.
The Real Cost of Late Payment
The invoice amount is the obvious cost. But late payment has knock-on effects that are easy to underestimate.
Your own suppliers. If a customer’s late payment means you cannot pay your own suppliers on time, your reputation suffers and you may lose early payment discounts or favourable terms.
Opportunity cost. Cash locked up in overdue invoices is cash you cannot invest in growth, stock, marketing, or hiring. Every day that money sits in someone else’s bank account, it is working for them, not you.
Stress and distraction. Chasing unpaid invoices takes time and mental energy that could be spent on productive work. For small business owners, this is not a trivial point – the anxiety of not knowing whether you can cover payroll because a customer will not pay is genuinely damaging.
Borrowing costs. If late payment forces you to use an overdraft or credit line to cover the gap, you are paying interest on money that should already be in your account. Your customer’s late payment is costing you real, measurable interest.
To understand exactly how late payment is affecting your business, calculate your Days Sales Outstanding using our DSO Calculator. If your DSO is significantly higher than your standard payment terms, late payment is dragging on your cash flow.
How to Stop It Happening Again
Dealing with this one invoice is important. Making sure it does not become a pattern is more important.
Run credit checks on new customers. Before extending credit, check their payment history. Companies House filings, credit reference agencies, and even a simple Google search can reveal warning signs. A customer who pays everyone late will pay you late too.
Set clear payment terms in writing. Agree terms before you start work, include them on every invoice, and make sure the customer’s accounts team has them on file. Verbal agreements about payment terms are worth exactly nothing when an invoice is overdue.
Take deposits on larger projects. A 25% to 50% deposit upfront reduces your exposure and confirms the customer is serious. If a customer resists paying a deposit, that itself is useful information.
Invoice immediately. Every day you delay sending an invoice is a day added to your payment timeline. Invoice the day you deliver, or the day the milestone is hit. Not next week.
Use staged payments for long projects. Monthly billing or milestone billing keeps cash flowing throughout a project rather than leaving you fully exposed until the end.
Follow up before the due date. A friendly reminder two or three days before an invoice is due normalises the conversation about payment. It is much easier than a difficult call two weeks after the deadline.
For a detailed guide to bringing your collection times down, see How to Reduce Your DSO.
Bridge the Gap While You Wait
If late payment is creating a regular cash flow gap, there are funding options specifically designed for this problem. Invoice finance, for example, lets you draw down a percentage of your outstanding invoices immediately rather than waiting for the customer to pay. It is not free money – there is a cost – but it can smooth over the gap between delivering work and getting paid.
Our guide to Working Capital Finance Options covers the main choices available to UK SMEs, including invoice finance, revolving credit, and asset-based lending.
This article is for informational purposes only and does not constitute legal or financial advice. If you are considering legal action to recover a debt, you should seek advice from a qualified solicitor. For persistent cash flow difficulties, consider speaking with a qualified accountant or financial adviser.