Most UK agency owners know, intuitively, that late payment is a problem. Fewer realise how much statutory power they already have to deal with it — or how rarely they use it. UK law gives commercial creditors meaningful remedies: statutory interest at 8% above base rate, fixed debt recovery costs, and a straightforward court process for undisputed debts. The agencies that know this fare significantly better than those who just send another polite reminder.
This guide covers everything you need to handle late payment confidently: the law behind your rights, how to calculate and claim statutory interest, what a proper escalation process looks like, when to use the courts, and how good invoicing systems prevent most of this from happening in the first place.
One caveat upfront: this article is general information for agency owners, not legal advice for a specific dispute. For anything over £5,000 or legally contested, speak to a solicitor. That said, the vast majority of late payment situations at UK agencies are straightforward enough to handle yourself if you know the process.
The Late Payment of Commercial Debts Act: What It Actually Says
The Late Payment of Commercial Debts (Interest) Act 1998, as amended by the Late Payment of Commercial Debts Regulations 2002 (implementing the EU Directive on late payment), gives you three things automatically, without needing them written into your contract:
- Statutory interest at 8% above the Bank of England base rate, calculated from the day after the payment due date.
- Fixed debt recovery costs of £40, £70, or £100 depending on the debt size, added automatically to every overdue invoice.
- The right to claim reasonable debt recovery costs beyond the fixed amounts if you’ve incurred them — for example, solicitor’s fees for chasing a large debt.
These rights apply to any commercial transaction between businesses — so they cover every invoice you raise to a limited company or sole trader client, regardless of what your contract says. If your contract specifies a lower interest rate, that clause may be void. The law was written specifically to stop larger businesses strong-arming smaller suppliers into waiving these rights.
The default payment term under the Act is 30 days from the invoice date or from the date the client received the goods or services, whichever is later. If your invoice terms say 14 days, interest starts running on day 15. If you have no stated terms, it defaults to 30 days. You can agree longer terms contractually — up to 60 days in most cases — but 60 days is the maximum the law considers reasonable for standard commercial transactions, and courts have struck down longer terms agreed under duress.
Statutory interest under the Late Payment Act is not optional generosity on your part — it is a debt the client owes you automatically, the moment their invoice goes overdue.
Calculating What You Are Owed
The interest calculation is straightforward. Take the overdue amount, multiply by the statutory rate (8% + current base rate), divide by 365, and multiply by the number of days overdue. With the Bank of England base rate at 5.25% as of mid-2024, the statutory rate is 13.25%.
As a worked example: a client owes you £3,500. Payment was due 90 days ago. The daily interest rate is 13.25% ÷ 365 = 0.0363%. Over 90 days: £3,500 × 0.000363 × 90 = approximately £114 in statutory interest. Add the fixed debt recovery cost of £70 (for debts between £1,000 and £9,999) and the total debt is now £3,684.
On top of that, for debts over £9,999 the fixed cost rises to £100, and you can additionally claim reasonable recovery costs — so if you’ve had to instruct a solicitor or a debt collection agency, those costs are recoverable too.
Most agencies never claim this interest, partly because they don’t know they can, partly because they don’t want to antagonise the client, and partly because calculating it feels laborious. The practical answer to all three: invoice software that tracks overdue days and calculates statutory interest automatically removes the friction and makes the claim unremarkable rather than confrontational. You’re not choosing to be difficult — you’re applying the law as written.
Building a Proper Escalation Process
Most late payment situations do not need to go anywhere near a court. They need a clear, structured escalation process — one that is polite, escalates deliberately, and signals at each stage that you know your rights. Here is a process that works.
Day 1 overdue: automated reminder
Send an automated, friendly reminder the day after payment was due. Keep it factual: invoice number, amount, due date, how to pay. No apologies for the reminder, no lengthy explanation. A single short paragraph is right. Most invoices that are a day or two late are genuinely forgotten — this resolves the majority of cases with zero friction.
Day 7 overdue: direct follow-up
If there is still no payment by day 7, a direct message — not just another automated email, but a message from the account owner — asking whether there is a query on the invoice. Keep it brief and non-aggressive: “We haven’t received payment for invoice [number] — is there anything you need from us to process this?” This surfaces any genuine disputes early and signals that the invoice is being actively tracked.
Day 14 overdue: formal notice
At two weeks overdue, send a written notice (email is sufficient) formally notifying the client that the invoice remains unpaid and that statutory interest under the Late Payment of Commercial Debts Act is accruing. State the current interest amount. Include your fixed recovery cost. Give a seven-day deadline for payment. This is not a threat — it is a factual statement of the law. Most clients, on receiving a letter that mentions the Act by name, pay promptly.
Day 21 overdue: letter before action
If payment has still not arrived, send a formal Letter Before Action (LBA). This is a legal document that notifies the debtor of your intention to pursue the debt through the courts if payment is not received within a specified period — typically 7 to 14 days. It should state: the original debt, the interest accrued to date, the fixed recovery costs, the total now owed, and the date by which payment must be received to avoid proceedings. An LBA sent by email with read receipt is acceptable. For larger debts, recorded delivery is better.
An LBA is a serious step — but it is also a remarkably effective one. In our experience, a significant majority of long-overdue debts are settled within a week of receiving an LBA, because the client recognises that court proceedings are genuinely imminent and the cost and inconvenience of defending a small claims action outweighs settling.
Day 35+: court proceedings
If the LBA deadline passes without payment, you have two main routes: the Money Claim Online (MCOL) service for debts up to £100,000, or a statutory demand for debts over £750 owed by a company (this is the precursor to winding-up proceedings and should only be used if you are genuinely prepared to pursue insolvency). For most agency debts, MCOL is the right tool.
Using Money Claim Online (MCOL)
MCOL is the UK government’s online court claim service, accessible at moneyclaim.gov.uk. You can issue a county court claim entirely online for debts up to £100,000. The fee scales with the debt: for a £3,500 claim, the court fee is £185. For a £1,200 claim, it is £115. These fees are added to the claim and recovered from the defendant if you win — which, for undisputed commercial debts, is almost always.
The process: you register, enter the defendant’s details and your claim (the original debt plus accrued interest and recovery costs), and pay the fee. The claim is served by the court. The defendant then has 14 days to acknowledge and 28 days to file a defence. If they do not respond — and many debtors do not — you can apply for a default judgment, which is effectively an automatic win. A default judgment can be enforced via bailiffs (High Court Enforcement Officers for larger debts), a charging order against their property, or an attachment of earnings order.
The critical requirement for MCOL is that the debt must be uncontested: you delivered the services, the client owes the money, and there is no legitimate dispute about the amount. If the client is disputing whether work was delivered or whether the invoice is correct, that needs to be resolved first — either through negotiation or through a more detailed legal process. This is why it matters to have clear signed contracts and project sign-off documentation before work begins. An undocumented dispute is far harder to win than a documented one.
A county court judgment (CCJ) appears on a company’s credit file for six years. Most clients understand this and settle before it comes to that.
Prevention: The Contracts and Systems That Stop Late Payment Happening
The best late payment strategy is one that makes late payment less likely in the first place. Several specific practices make a material difference.
Invoice immediately. Agencies that raise invoices on the day work is delivered or on the first of each month for retainers get paid faster than those who batch invoices informally. Every day of delay in issuing the invoice is a day added to the payment timeline. Automating recurring invoice generation removes this entirely — invoices go out on schedule regardless of how busy the team is.
Specify terms on every invoice. “Payment due 30 days from invoice date” should appear on every invoice, along with your bank details and a clear invoice number. Invoices without payment terms are harder to chase because the due date is ambiguous. Invoices without a clear payment method require the client to do extra work before they can pay — every additional step reduces conversion.
Take deposits for project work. A 30–50% deposit upfront is standard practice for project-based engagements. It reduces your exposure to non-payment, filters out clients who are not serious, and creates a payment relationship before the engagement starts. For a £10,000 project, a £3,500 deposit means your maximum exposure is £6,500 rather than the full amount.
Include late payment terms in your contract. While the Late Payment Act gives you statutory rights regardless, having those rights explicitly stated in your contract reinforces them and removes any doubt. Include the statutory interest rate, the fixed recovery costs, and a right to suspend services on invoices more than 14 days overdue. That last clause — suspension of services — is often more motivating than the interest calculation.
Monitor payment status actively. Agencies that track which invoices are overdue and by how long are far more effective at collecting than those who rely on the accounting system sending automated reminders. With invoice tracking and client health scoring in your management platform, a client whose payment behaviour is deteriorating shows up as an amber flag before the relationship becomes a collections problem. That gives you time to have a proactive conversation rather than a confrontational one.
When to Pause or Stop Work
One of the most effective tools available to agencies dealing with late payment is also one of the most underused: the right to pause or stop work on outstanding invoices. If your contract includes a clause allowing you to suspend services for non-payment — which it should — you can stop new work after a defined overdue period, typically 14–21 days.
This is not about punishing the client. It is about not compounding your exposure. Continuing to deliver work on a retainer while two or three months of invoices go unpaid means you are, in effect, extending unsecured credit to a client who has demonstrated they do not pay on time. That is a poor commercial decision regardless of how much you value the relationship.
The right way to handle this: when an invoice hits the 14-day overdue threshold, send a brief notification that work will be paused from a specified date unless payment is received. Most clients, on receiving this notice, settle the outstanding balance or at least get in touch to arrange payment. For those who do not, pausing work early limits your loss. The alternative — continuing for another 60 days before finally escalating — means you are owed four months of fees instead of one.
This approach requires clear contractual language. “The agency reserves the right to suspend services on accounts with invoices more than [14] days overdue, with [5] days’ written notice” is the type of clause that makes this enforceable rather than a statement of intent. If your current contracts do not include this, add it at next renewal. For clients already on retainer, sending a contract update with new payment terms is standard practice — most clients accept it without pushback.
When to Use a Debt Collection Agency
Debt collection agencies are worth considering for debts that are genuinely old (90+ days), where the client has gone quiet, and where the amount is large enough to justify the cost but perhaps not large enough to feel worth the time of MCOL. A reputable commercial debt collection agency will typically work on a contingency basis — 10–25% of the recovered amount, with no upfront fee.
The key distinction is between no-collection, no-fee arrangements (where the agency takes a percentage only if they collect) and arrangements with upfront costs. For agency debts below £5,000, contingency-only is almost always the right choice. The agency’s involvement often prompts payment simply because the debtor knows a third party is now involved.
Before instructing a debt collection agency, make sure you have: a copy of the signed contract or engagement letter, all invoices with dates and amounts, any written acknowledgement of the debt by the client, and a record of your chasing correspondence. This documentation is what the agency will need to work effectively. Agencies that maintain clean records in their CRM and invoicing system can pull this together in minutes; those working from scattered email threads cannot.
Protecting Your Agency’s Cash Flow Starts with Knowing Your Rights
Late payment costs UK small businesses an estimated £23.4 billion a year in delayed cash flow, according to the Federation of Small Businesses. For a 10-person digital agency running on 30-day payment terms, two clients who consistently pay 60 days late can materially damage cash flow — not because the money is permanently lost, but because it arrives late enough to create real operational strain.
The Late Payment of Commercial Debts Act gives you meaningful tools. Statutory interest at 8% above base rate, fixed recovery costs, and a straightforward court process for undisputed debts are all available to you without a solicitor and without confrontation. The agencies that use these tools consistently get paid faster — partly because the tools work, and partly because clients learn quickly that this agency is the one that tracks invoices and acts on them.
The practical foundation for all of this is good systems: invoices that go out on time, payment terms that are clearly stated, contracts that include suspension clauses, and a platform that tells you which clients are going amber on payment before they go red. For a closer look at building those foundations, see our guides to automating your invoice workflow, getting contracts signed digitally, and building a billing system that does not leak revenue.