Late payment guide: legal rights and process for claiming a late payment

In an ideal world, every invoice will be settled as soon as it’s received. Or at least within the payment terms. But sadly, chasing missed or late payments is almost inevitable at some point in the life of any freelancer or self-employed professional. Following our guide and advice should help to make it an inconvenience, rather than a major headache, if it happens to you.

Cash flow is important for any business. But if you’re a solo entrepreneur or freelancer, then it can be the difference between not only keeping your company afloat, but also being able to pay for rent and food. If you’re on a tight budget, even a small delay can cause major problems, regardless of the amount of money involved. 

And the longer you let these problems go unresolved, the bigger they tend to get. Forget to chase an unpaid invoice when it’s due, and you’ll find it more difficult to ask a client to pay six, or twelve months later. Not only does it feel unprofessional, it’s also possible that your original contacts may have moved on, or the company ceased trading. In which case, it’s going to be tricky to get anything back in exchange for the time and resources you’ve already spent on a project.

When setting out a payment date, it usually must be within 30 days for public authorities, or 60 days for private business transactions. While you can agree longer periods if you wish, and the other party agrees, by default, the payment is late 30 days after either the invoice is received by the client or customer, or the goods and services have been delivered (if later than the invoice date).

If a payment has been missed, then you can claim interest and debt recovery costs, as governed by The Late Payment of Commercial Debts (Interest) Act 1998. 

And you’re entitled to compensation, even if your invoice or payment terms didn’t mention it. By law, you’re permitted to claim statutory interest for late payments up to six years in the past if you are in England, Wales or Northern Ireland, and for five years in Scotland.

Unless otherwise set out in your payment conditions, you can claim up to 8% statutory interest plus the Bank of England Base Rate, along with the option of a fixed recovery fee based on the amount owed.

A common approach for many freelancers is to require a partial deposit, or to set out stepped payments at agreed stages in a project. Or to withhold the final deliverable until payment has been made. But you may find some clients aren’t keen on these types of arrangements, so you’ll need to decide whether to implement them or not depending on the individual circumstances. But always have a clear agreement in place, even if you’re working for friends or family.

If you’re sending out recurring invoices, you can use various services to allow for regular direct debit payments, or instant settlement via PayPal, Stripe or other similar payment systems. While these normally involve percentage-based fees based on the invoice amount, there’s a big potential for saving time and effort in sending or chasing invoices.

When you’re entering into a new agreement, make sure you know who will be responsible for processing payments. Particularly in larger companies, the person hiring you probably won’t be responsible for settling your invoice. And including the accounts department when you email your bill will ensure it won’t get delayed in your contact’s email inbox for no good reason.

Also check your contracts and invoices to ensure you’re not copying incorrect information from a previous agreement. There’s nothing worse than chasing a late payment only to realise you’ve listed the wrong bank account number, or set longer terms than you realised.

It’s easy to let self-employed admin tasks slide when you’re rushed with client work, but schedule time each week to go through your invoices and ensure you’ve sent everything due, reminded anyone close to missing a payment, and chased any unsettled bills.  While it’s legally possible to claim a payment with interest for up to six years, waiting so long isn’t recommended. And can lead to complications working out your taxable income.

It’s always beneficial to have a good relationship with your clients, especially if you tend to get work referrals through recommendations. Which means it can feel tricky to send reminders and demands for late payments to be settled.

But unfortunately, being too nice can actually create problems. Even if a client doesn’t intentionally use it as an excuse to take advantage of you, it can mean the important part of your message is buried underneath all the pleasantries.

When it comes to payments, be clear, concise, and professional. Clients will understand and respect the fact you’re a business person, and you can always ask about their family, or how their holiday went, in a separate email. 

And if a client asks for more time, or a change to the agreed payment terms, then make sure you get any, and all, such agreements in writing. Never rely on a purely verbal conversation, as you may need to refer back to it in the future. And again, it’s easy for two parties to misunderstand what’s been discussed until it’s clearly stated in writing, whether that’s an email or on paper.

If you’ve reached the stage where late payment fees are applicable, you may decide to try one last time to prompt the client to pay up. Often the prospect of additional costs can spur them into action. Staying polite and professional means that you can maintain a good working relationship, or they may still recommend you to other clients, even if you choose not to work with them again in the future.

If a client still refuses to pay or has gone silent, then for debts under £10,000 you can apply to Small Claims ‘Court’ to recover it. It’s a procedure handled within the County Court and generally you won’t need a lawyer unless it becomes complex. And you can apply through the Government portal.

But before this stage, you’ll need to send a Notice of Intention to go to court, known as a Letter Before Claim. This has to be:

• In writing
• On paper
• Sent via Recorded Delivery
• Summarise what has happened/the claim
• The remedy you are seeking (i.e. payment)
• Provide a set deadline for response/settlement
• That you will issue court proceedings in the event of no response/settlement

If the customer or client does not respond or pay, you can proceed to make your claim via Form N1 on paper or online. Fees apply (and are £10 cheaper online) depending on the size of the claim. You can find out more here including information regarding assistance with fees if you are on certain benefits. If you win your case, you may be able to claim the application fees back, but this is not guaranteed. Some cases go ‘undefended’ which means you win by default.

Be aware that applying to court is a last resort and mediation should be considered where applicable (the court can also order this once an application is made as part of the court fee). There is also no guarantee of success; only a legal representative will be able to advise you on the merits of your specific case upon reviewing all available documentation, but this is costly. If you lose the case, you may be ordered to pay the defendant’s costs, although these are usually limited.

You will need to set out your claim in the application form space provided, which should be a chronological order of what has happened and include all relevant information - these are known as ‘particulars of claim’. This should be backed up by any evidence (i.e. contract, statement of work, emails and letters, or records of phone calls) and the names of any witnesses (i.e. people present in meetings where contract terms were agreed) and indicated in the form if they are attached or to follow. 

The court will issue the application and serve it on the defendant. If the claim is undefended, you will be awarded what you seek, plus any costs (i.e. application fees) the judge sees fit. If it is defended, the judge will issue a Notice of Allocation and order additional evidence to be filed by both you and the defendant in time for a Final Hearing (usually 14 days prior) - the date and time of which will be specified in the Notice. 

You are likely to be required to attend the hearing in person unless it is being conducted virtually or the judge dispenses with attendance. Read all the evidence filed (including your own) prior to the Final Hearing so it is fresh in your mind, as you will be required to present your case to the court. Do not panic or feel intimidated, civil court hearings are less formal than criminal cases and there is no jury - you should be calm and collected to ensure your presentation comes across clearly and so the judge can make a fair decision. At the end of the hearing, the judge will decide in either yours or the defendant’s favour. 

If you are successful, the defendant will be ordered to pay a sum (possibly inclusive of costs) within a set amount of time. If they do not pay, there are procedures to follow to enforce the judgement - this again involves time and further cost to you but can include:

• Instructing court bailiffs to recover the debt
• Having the sum deducted from PAYE wages
• Putting a charge on property
• Freezing assets or bank accounts

If you are unsuccessful at the Final Hearing, you can consider an appeal, but there are limited grounds to do so and you may need legal advice before issuing one. This will also incur further costs which you should be mindful of, especially in the event the appeal is also unsuccessful. 

The effort of chasing missed or late payments can have an impact even if there’s a relatively quick and successful outcome. Recognising the effects it can have will help you manage them, and avoid anything spilling over to other clients, family or friends.

It’s easy to let your confidence slip, and feel like clients are persecuting you in particular. Remind yourself that you’re not responsible for their bad behaviour, and that it’s nothing personal. The natural fight or flight response can lead to stress and overreacting to what may simply be an administrative mistake on their part, for example.

Plus, worrying about a particular client could sap your motivation and concentration for other work. So, automate as much of the process as possible, and try to see it purely as a business matter which will be resolved just as quickly if you’re not constantly thinking about it. We’ve shared a range of tips and advice for dealing with stress and other mental wellbeing issues.

The other impact can be on your business or personal finances. With all money matters, it’s better to be proactive and try to get them under control as soon as possible. And pretty much any financial difficulty can be solved eventually with a little effort and support, and without risking your home or other assets. If you’re facing personal money problems due to late payments or for other reasons, get advice from dedicated organisations such as StepChange.