2 min read
Stage one: reminder communications
Most late payments are not intentional. A significant proportion of overdue invoices are caused by approval process delays, disputed purchase orders, or the invoice simply not reaching the right person. Your first contact should be a friendly but clear reminder — by phone if possible, confirmed by email.
Call the accounts payable contact, confirm receipt of the invoice, and establish a specific payment date. Document the call: who you spoke to, what was said, and any commitment given. Follow up in writing the same day: 'As discussed, we look forward to receiving payment by [date].' This creates an evidence trail without escalating the relationship.
Stage two: formal written demand
If a commitment is missed or you receive no response after two reminders, escalate to a formal demand letter. State: the invoice number and date, the amount due including any accrued statutory interest, the number of days overdue, and a clear deadline (typically 7–14 days). Advise that you will commence debt recovery action if payment is not received by that date.
- Send by email and recorded post to the company's registered address
- Address to a named director, not just 'Accounts'
- Include your statutory interest calculation — it signals you know your rights
- Keep the tone firm but not threatening or abusive
Stage three: suspending supply and credit
If your terms include a right to suspend supply or reduce credit limits on overdue accounts (which they should), exercise it. Notify the customer in writing that their account is on hold pending clearance of the overdue balance. This is a powerful lever — particularly for customers who depend on continuity of supply — and often prompts payment where reminders have not.
Consider also whether you should continue to extend credit to this customer at all, or require proforma payment going forward. A customer who has been consistently late is a credit risk on future orders as well as past ones.
Stage four: formal debt recovery
If the debt remains unpaid after a formal demand, your options are: engaging a debt collection agency (who typically work on commission), instructing a solicitor to issue a letter before action and then file a County Court Claim, or — for undisputed debts over a threshold — filing a statutory demand as a precursor to winding-up proceedings. The County Court online system (Money Claim Online) allows businesses to file claims up to £100,000 without a solicitor.
Before litigating, assess whether the customer has assets to pay a judgement. A CCJ against an insolvent company produces no cash. If insolvency is a risk, act quickly — unsecured creditors in a liquidation typically recover little.
Frequently asked questions
Can we add interest and compensation to the amount we are chasing?
Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you are entitled to claim statutory interest at 8% above Bank of England base rate from the date the invoice became overdue, plus fixed compensation of £40, £70, or £100 depending on the invoice value. Include these in your demand letter.
What if the customer says the invoice is disputed?
A genuine dispute suspends the right to statutory interest for the disputed portion. Ask the customer to specify the dispute in writing. If the dispute is unfounded or raised opportunistically, document your response carefully — you may need to demonstrate later that the debt was never genuinely contested.
Is a statutory demand the same as a winding-up petition?
No. A statutory demand is a formal written notice giving the company 21 days to pay or secure a debt of £750 or more. Failure to respond allows the creditor to file a winding-up petition. The demand itself is not a court document but courts expect creditors to have issued one before petitioning.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.