Short answer

If a business customer pays late, you can usually claim statutory interest at 8% above the Bank of England base rate (11.75% a year for debts falling due in 2026) plus fixed compensation of £40, £70 or £100. Send a clear letter before action first. If that fails, you can make a court claim.

What can you do when a client is not paying an invoice?

Most business debt recovery is done without court if you act promptly and in writing. A typical way to chase an unpaid invoice is:

1. Check the contract and invoice: payment terms, correct legal name of the customer, and any dispute raised.
2. Send a polite reminder as soon as the due date passes, then a firmer chaser by email and phone.
3. Send a formal unpaid invoice letter claiming statutory interest and compensation.
4. Send a letter before action giving a final deadline and warning of court proceedings.
5. Issue a court claim, or for undisputed debts consider a statutory demand.

Keep records of every contact. Stop work or deliveries only if the contract allows it, or you may be in breach yourself.

If the company appears to be insolvent, suing might not be the most appropriate route. You should consider registering as a creditor instead.

How much late payment interest and compensation can you claim?

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts between businesses for goods or services, unless the contract sets its own substantial interest rate. Statutory interest is 8% a year above the Bank of England base rate. The base rate used is the one in force on 30 June (for debts that become due from July to December) or 31 December (for January to June). The base rate was 3.75% on both dates, so the rate for debts falling due in 2026 is 11.75% a year.

Daily interest is the debt multiplied by 11.75%, divided by 365. On a £5,000 invoice that is about £1.61 a day.

You can also claim a fixed compensation sum for each late invoice under section 5A:

• £40 for a debt under £1,000
• £70 for a debt of £1,000 to £9,999.99
• £100 for a debt of £10,000 or more

If your reasonable recovery costs are higher, you can claim the difference. Where no payment date was agreed, interest runs 30 days after delivery or the invoice, whichever is later.

How do you send a letter before action?

Before issuing a claim, the Practice Direction on Pre-Action Conduct expects you to write to the other side setting out the claim, how it is calculated and what you want. Give a reasonable time to respond, usually 14 days for a straightforward debt. If your customer is a sole trader or other individual, the Pre-Action Protocol for Debt Claims applies instead: you must enclose specific documents and allow 30 days.

Courts can penalise a party who ignores these steps, for example with costs orders or reduced interest.

How do you make a court claim for unpaid money?

You can make a money claim in the County Court online. Claims of £10,000 or less usually go to the small claims track, where legal costs you can recover are very limited. The court fee depends on the amount claimed, including interest:

• £3,000.01 to £5,000: £205
• £5,000.01 to £10,000: £455
• £10,000.01 to £200,000: 5% of the claim
• over £200,000: £10,000

If a small claim is defended, both sides must take part in a free one-hour telephone session with the HMCTS Small Claims Mediation Service. A judge can strike out a claim or order costs against a party who does not attend.

When can you use a statutory demand?

A statutory demand is a formal demand that gives the debtor 21 days to pay or agree terms. It is a step towards insolvency, not a debt collection letter:

• You can petition to wind up a company owed £750 or more (fees: £352 court fee plus £2,600 deposit).
• You can petition to bankrupt an individual owed £5,000 or more (£352 plus a £1,500 deposit).

Only use one for a debt that is clearly not disputed. If the debtor has a genuine dispute, the court will set the demand aside and you may pay their costs.

What counts as a breach of contract, and can you end the contract?

A breach of contract happens when a party fails to do what it promised: late or defective delivery, non-payment, or poor-quality services. Your usual remedy is damages to put you in the position you would have been in if the contract had been performed. You must take reasonable steps to limit your loss.

You can terminate a contract early only if:

• the contract has a termination clause and you follow its notice rules exactly
• the other side commits a repudiatory breach, meaning a breach so serious it goes to the root of the contract
• both parties agree

Ending a contract without a right to do so can make you the party in breach. If a supplier breaches a contract, write to them identifying the breach and what you need them to do before deciding whether to end it.

Should you use mediation for a business dispute?

Mediation is a confidential negotiation led by an independent mediator. It is often quicker and cheaper than court and keeps commercial relationships intact. Courts expect businesses to consider it seriously and can order parties to try alternative dispute resolution. An unreasonable refusal can lead to a costs penalty even if you win.

If you agree to mediate, record the terms in writing, for example with Libra's mediator appointment template.

What are the key deadlines and time limits?

Act quickly: the longer a debt is left, the harder it is to recover.

• 30 days: default payment period between businesses where none is agreed.
• 14 days: usual response time to a letter before action for a simple business debt; 30 days where the debtor is an individual or sole trader.
• 21 days: time a debtor has to pay after a statutory demand.
• 14 days: time to respond to a court claim once served, or 28 days if the defendant acknowledges service.
• 6 years: limit for bringing a claim for an unpaid debt or breach of contract (Limitation Act 1980, section 5).

What should you do next?

1. Gather the contract, invoices, delivery evidence and all correspondence with the customer or supplier.
2. Calculate what you are owed, including statutory interest at 11.75% a year and the fixed compensation sum.
3. Send a letter before action with a clear deadline, and offer to discuss payment terms or mediation.
4. Ask Libra to draft your unpaid invoice letter or letter before action, and check whether your debt is disputed.
5. If the deadline passes, issue a money claim online or, for an undisputed debt, consider a statutory demand.
6. For larger or complex disputes, find a lawyer or clinic through Libra. In future contracts, consider a payment guarantee.

Frequently asked questions

Can I charge late payment interest if my invoice terms do not mention it?

Yes. Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 is implied into business-to-business contracts for goods and services automatically. You do not need to have mentioned it on your invoice. It does not apply if the contract sets its own substantial remedy for late payment.

Can I claim late payment interest from a consumer?

No. The 1998 Act only applies where both parties are acting in the course of business. For a consumer debt, you can only charge interest if the contract provides for it, although a court can award simple interest on a successful claim at its discretion.

Is a statutory demand a good way to chase an unpaid invoice?

Only for a clear, undisputed debt above the thresholds. It is a threat of insolvency proceedings, so misusing it where there is a genuine dispute can lead the court to set it aside and order you to pay costs. A letter before action and a money claim are usually safer.

Are payment terms going to be capped at 60 days?

Not yet. The Commercial Payments Bill, introduced in May 2026, would set a maximum payment period of 60 days for commercial contracts and make statutory interest compulsory. It is still going through Parliament, and the cap is not expected to start before 2027. Check whether it has passed before relying on it.

Can I recover my legal costs for chasing a debt?

Under the 1998 Act you can claim reasonable recovery costs above the fixed £40, £70 or £100 sum. In court, costs you can recover on the small claims track (claims of £10,000 or less) are limited mainly to court fees and small fixed amounts. Larger claims allow wider costs recovery.

What if the customer says the work was defective?

Take the complaint seriously and ask for details in writing. If part of the invoice is genuinely disputed, consider claiming the undisputed part, or offer mediation. Courts expect both sides to engage before proceedings, and an unreasonable approach by either side can affect costs.

Can I claim payment if I never had a written contract?

Yes. Verbal contracts and contracts formed by emails, quotes and conduct are legally binding. The difficulty is proof. Gather emails, messages, purchase orders, delivery records and invoices showing the agreed work and price. If terms are unclear, the court looks at what a reasonable person would have understood.

Can I sue a company's director for the company's debt?

Generally no, because a limited company is a separate legal person. You can usually only claim from the company. Exceptions include a personal guarantee, fraud, or where the director personally gave a misleading assurance. Check your contract and credit application for any guarantee.

Can I stop work or deliveries if my customer has not paid?

Only if your contract or the law allows it. Some contracts include a right to suspend for non-payment, and construction contracts have statutory suspension rights. Otherwise stopping work can put you in breach. Send a written warning giving a fixed date before suspending, and ask Libra to check your terms.

What does without prejudice mean in a settlement letter?

A letter or call marked without prejudice and made to genuinely try to settle a dispute usually cannot be shown to the court as evidence of an admission. It protects open negotiation. It does not apply just because you use the label, and it can be lost if used for misrepresentation.

What if I win a court judgment against a business and it still does not pay?

You can ask the court to enforce the judgment. Options against a company include a warrant of control to seize goods, a third party debt order over its bank account, or a charging order over property. You can also consider a winding up petition if the debt is large enough.

Can I claim from a company that has gone into liquidation?

You would usually become an unsecured creditor and submit your claim to the liquidator. Court claims against a company in compulsory liquidation are stayed without permission. Recovery is often small, so check whether you have a retention of title clause, a personal guarantee or a claim against another party.

Ask Libra

• My client is 60 days late paying an invoice. What can I do?
• How much late payment interest can I claim on a £4,000 invoice?
• Draft a letter before action for an unpaid business invoice
• Can I sue for an unpaid job if we never signed a contract?
• My supplier delivered faulty goods. Can I terminate the contract?
• How do I enforce a judgment against a company that will not pay?

Sources

• Late Payment of Commercial Debts (Interest) Act 1998
• Charging interest on commercial debt (GOV.UK)
• Make a court claim for money: court fees (GOV.UK)
• Small claims mediation (GOV.UK)
• Statutory demands (GOV.UK)
• Wind up a company that owes you money (GOV.UK)
• Practice Direction: Pre-Action Conduct and Protocols
• Limitation Act 1980, section 5

This guide is general information about the law in England and Wales as at September 2026, not legal advice. For advice on your situation, ask Libra or find a lawyer through Libra.