Trade Business Debt Recovery UK — Chasing Unpaid Invoices and Late Payment Rights (2026)

The scale of the problem: late payment is endemic in construction

Unpaid invoices are one of the biggest threats to a trade business — and they're far more common than most business owners realise. Xero's data consistently shows that tradespeople and contractors wait an average of 30 or more days beyond their agreed payment terms to receive money they're already owed. In construction, stretching suppliers and subbies is almost culturally embedded.

The damage goes well beyond inconvenience. A single large unpaid invoice can wipe out your cash reserves, leave you unable to pay suppliers or staff, and force you to turn down new work because you can't fund materials. Even a healthy business with a full order book can be sunk by one client who refuses to pay or drags it out for months. Knowing your rights — and acting on them quickly — is not aggressive; it's essential.

Prevention is better than cure

The most effective debt recovery strategy is the one you put in place before work starts. Getting your payment terms right at the quoting stage removes most disputes before they begin.

• 30-day payment terms as a maximum for B2B work. Longer terms erode your cash flow and give clients time to raise spurious disputes. Put the terms in writing in your quote and contract.
• Deposits of 20–30% for large jobs. A deposit filters out time-wasters and means you're never funding an entire job from your own pocket. Make it clear this is non-refundable if the client cancels after materials have been ordered.
• Stage payments for projects over £5,000. Agree defined payment milestones tied to completion of specific work stages. Never complete the next stage without receiving the previous payment.
• Written client acceptance before starting. A signed quote, email confirmation, or WhatsApp message acknowledging your terms is enough. It removes the "I never agreed to that" defence later.

Your late payment rights under UK law

Most tradespeople are unaware they have a legal right to charge interest on late B2B invoices — and to recover their debt collection costs on top of the original amount.

The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to charge statutory interest of 8% above the Bank of England base rate on overdue business-to-business invoices. At current base rates, that puts the statutory rate around 12–13% per annum. Interest accrues from the day after the payment due date automatically — you do not need to have included it in your original contract.

You can also claim fixed debt recovery costs on top of the overdue amount:

• £40 for debts under £1,000
• £70 for debts between £1,000 and £9,999
• £100 for debts of £10,000 or more

These rights apply to business-to-business transactions only. Different rules apply when your client is a consumer (a homeowner, for example). For consumer debts, your contractual terms and the Consumer Rights Act 2015 govern disputes instead.

The chase sequence: how and when to escalate

Most businesses leave it too long before chasing. Start the moment a payment is overdue — not when it has been outstanding for three weeks.

• Day one after the due date: phone call first. A brief, professional call is harder to ignore than an email and often resolves the issue immediately. Establish whether there is a genuine problem (disputed work, admin error) or whether you are simply being strung along.
• Day three: follow up with a written reminder — email is fine at this stage. Include the invoice number, amount, and due date. Keep the tone professional.
• Day seven: escalate to a formal demand. Make clear you will charge statutory interest and will consider legal action if payment is not received within 7 days.
• Day fourteen: letter before action (LBA). This is the final formal step before court.
• After the LBA deadline: proceed to small claims court, a debt collection agency, or adjudication (for construction contracts).

Keep a written record of every communication — dates, who you spoke to, what was said, and any promises made about payment. This evidence is invaluable if the matter goes to court.

A formal letter before action (LBA)

An LBA is a formal written notice that you intend to start legal proceedings if payment is not received. It is required by the courts before you issue a claim — failing to send one can result in cost penalties even if you win.

Your LBA must include:

• The exact amount owed, including any statutory interest and recovery costs
• The invoice number(s) and original due date(s)
• A clear payment deadline — typically 7 days from the date of the letter
• A warning that you will start court proceedings if payment is not received by the deadline
• Your bank details for payment

Send it by recorded delivery (Royal Mail Signed For or Special Delivery) so you have proof of receipt. Email alone is not sufficient for an LBA. You can use a free template or have a solicitor draft one for around £50–£100 if the debt is large enough to warrant it.

Small claims court (England and Wales)

For debts up to £10,000, the small claims track in the County Court is the most practical legal route. You do not need a solicitor, and the process is designed to be accessible to business owners.

You file online via Money Claims Online (MCOL) at moneyclaims.service.gov.uk. Court fees range from £35 (for claims under £300) up to £455 (for claims between £5,000 and £10,000) and are recoverable if you win.

The process works as follows:

• You submit the claim online with details of the debt and supporting evidence.
• The defendant has 14 days to respond — they can admit the claim, dispute it, or ignore it.
• If they admit the claim or do not respond, you can request a default judgment immediately.
• If they dispute the claim, a hearing is scheduled (often by phone or video for smaller claims).
• If you win, you receive a County Court Judgment (CCJ). Enforcement options include attachment of earnings (deducting from the debtor's wages), a charging order on their property, or instructing a County Court Bailiff to recover the debt.

A CCJ registered against a business or individual also damages their credit record, which gives many debtors strong motivation to pay before judgment is entered.

Debt collection agencies

Debt collection agencies (DCAs) act on your behalf to recover outstanding money, typically on a no-win no-fee basis. They take a percentage of whatever they recover — usually 10–25% depending on the age and size of the debt and how difficult the debtor is.

DCAs are worth considering when:

• Your direct chase has failed and you've sent an LBA with no response
• The debt is too small to justify court proceedings or a solicitor's time
• You want to preserve the relationship (a third-party agency creates some distance from you personally)
• You don't have the time to manage court proceedings yourself

The downside is cost — losing 15–25% of a debt is painful, especially on smaller invoices. And some clients will take it as a sign of a permanently broken relationship, so use DCAs when you've already decided you won't work with the client again.

Adjudication under the Construction Act

If you work under a formal construction contract, you have a powerful tool that most tradespeople don't use: adjudication.

The Housing Grants, Construction and Regeneration Act 1996 gives any party to a construction contract the right to refer a payment dispute to an independent adjudicator at any time. The process is fast:

• An adjudicator is appointed within 7 days of your notice
• The adjudicator issues a decision within 28 days (extendable by agreement)
• The decision is binding immediately — the other party must pay even if they intend to dispute it later

Adjudication costs include the adjudicator's fees (typically shared equally between both parties, ranging from £2,000 to £10,000+ depending on complexity) and each party's own legal costs. It is most cost-effective for larger disputed sums — generally £20,000 or more — where the speed and enforceability justify the cost.

Note that adjudication applies to construction contracts as defined by the Act. Straightforward domestic repair and maintenance work may not qualify — check with a construction solicitor if you're unsure.

Dealing with client insolvency

If a client goes into administration or liquidation before paying you, your position becomes significantly harder. As an unsecured creditor, you join a queue behind HMRC, secured lenders, and preferential creditors — and in many insolvencies, unsecured creditors receive nothing or only pennies in the pound.

• Administration vs liquidation: administration aims to rescue the business and may result in partial payment; liquidation winds it up and distributes assets. Register your claim with the administrator or liquidator as soon as possible either way.
• Retention of title clauses: if you supplied materials (not just labour), a retention of title clause in your contract means you retain ownership of those materials until paid. This allows you to recover the goods — provided you can identify and access them. Without such a clause, the materials become the client's (now insolvent) assets.
• Practical steps: stop work immediately, document everything on site (photos, material delivery records), register your claim promptly, and seek legal advice on whether any retention of title or construction lien arguments apply to your situation.

The best protection against client insolvency is stage payments — you limit your exposure to the value of one completed phase rather than an entire project.

Improving your credit control systems

Most debt recovery problems are systemic — they stem from weak invoicing and credit control habits rather than one-off bad clients. Tightening your processes dramatically reduces the volume of chasing you need to do.

• Invoice immediately on completion, not at the end of the month. Every day of delay is a day added to your wait for payment.
• Set up automated payment reminders via your invoicing software — a polite reminder three days before the due date and again on the due date catches most slow payers before they become defaulters.
• Accept card payments. Clients who can pay by card on the day the job is completed are far less likely to become late payers than those asked to do a BACS transfer later.
• Consider invoice finance or factoring as a safety net for larger contracts. You sell your invoices to a lender for 70–90% of their face value upfront, and receive the remainder (minus fees) when the client pays.
• Credit check new commercial clients before taking on significant work. Companies House shows filed accounts and CCJs. Credit reference agencies like Creditsafe or Experian offer business credit checks from around £10–£20.