Payment terms that stop customers paying late
How to set payment terms that get you paid on time
Six steps, in order, to cut late payment before it starts.
- Check the customer before you accept the work Look up the company at Companies House for filed accounts and any strike-off notice, and search The Gazette for insolvency notices. Decide the credit you are willing to extend before you quote.
- Agree the terms in writing first Put the payment period, the due date rule, your late payment interest and any deposit in the quote or contract, and get a written acceptance.
- Take a deposit or stage payments where the risk is high For large, bespoke or first-time orders, split the price so that you are never owed the whole sum at once.
- Invoice promptly and precisely Send the invoice as soon as the work is done, to the named person, with the purchase order number, the exact due date and your bank details.
- Chase on a schedule, starting the day after the due date A short email the day after, a phone call a few days later, then a dated final request. Keep a note of every contact.
- Escalate when the dates are missed Move to a letter before action and, for an undisputed debt, a debt collection agency, rather than letting the invoice age.
Letter ignored? Compare agencies for your unpaid invoice →
Most late payment is decided before the invoice is sent. Check the customer before you accept the work, agree the payment terms in writing before you start, and make late payment visibly costly and easy to enforce. None of this needs a lawyer or a credit-control department, and each step is cheaper than chasing an overdue invoice.
If an invoice is already overdue, skip to our guides on what to do when a customer keeps promising to pay and what to send in a letter before action. This guide is about the next customer.
Check who you are lending to
Every invoice on credit is a loan. Before you agree to one, spend ten minutes on the customer. Companies House shows a company’s filed accounts, its registered office, its directors and any strike-off notice. The Gazette shows insolvency notices. If the customer is a sole trader or partnership, remember that you will be chasing a person, and our guide to who you can chase explains what that means.
Then decide how much credit you will give. A new customer with thin accounts might get a deposit and short terms. A long-standing one with a clean record might get 30 days. A paid credit report adds more, but it is a snapshot, not a promise.
Put the terms in writing before work starts
Terms that appear for the first time on the invoice are the ones customers argue with. Put them in the quote or contract, and get a reply that accepts them. Keep them short:
- The payment period and how it is counted. “Payment due 14 days from the invoice date” is clearer than “prompt payment”. Short periods are easier to defend than long ones, and a long period is something you can grant later.
- The due date on every invoice. Write the actual date, not just the number of days.
- What happens if it is late. On a business-to-business debt, the Late Payment of Commercial Debts (Interest) Act already gives you statutory interest at 8% plus the Bank of England base rate and fixed compensation of £40 (under £1,000), £70 (£1,000 to £9,999.99) or £100 (£10,000 or more) per invoice. Quoting these in your terms means the customer has seen them in advance. Your own contract can set a different rate, but gov.uk notes that you cannot claim statutory interest where a contract has one, so use the statutory figures unless you have a reason not to. Our guide to interest and compensation on a late invoice shows how to work out the sum.
- Any deposit or stage payments, with dates.
- Who the invoice goes to. Name the person or the accounts address, so nobody can say it was sent to the wrong place.
These rules apply to business-to-business debts. Consumers are covered by different rules, so do not quote the statutory interest figures to a private individual.
Share the risk on big or unfamiliar jobs
If you would be seriously hurt by not being paid, do not let the whole price build up unpaid. Ask for a deposit before starting, or split the price into stages tied to milestones, and say in the contract that work stops if a stage payment is missed. A customer who will not agree to any of this is telling you something useful before you have spent anything.
Invoice quickly and correctly
A late invoice is a late payment you created. Send it the day the work is done, to the person named in your terms, with the purchase order number if there is one, the exact due date, and your bank details. Many invoices are delayed by a missing reference, not by unwillingness to pay, so remove the excuse. Our guide on keeping recovery on track when a customer disputes the invoice covers what to do when a query does arise.
Chase on a schedule, starting the day after
Decide your chasing routine in advance and follow it. A short, friendly email the day after the due date, a phone call a few days later, then a dated final request that says what you will do next. Each contact is recorded. This is far easier than deciding what to say on the fortieth day, and it signals that you notice. It also matters for the long term: how long a debt can be chased is limited, and our guide on how long you can chase an unpaid invoice explains why delay never helps.
Know when prevention has done its job
Good terms reduce late payment; they do not remove it. When the dates have passed and the replies have stopped, more reminders mostly cost you time. Move to a letter before action and, if the debt is undisputed and the customer is still trading, put it in front of an agency. You can compare vetted UK debt recovery agencies on Collect Compare, with names hidden until you choose, or let us match you to the right one. It is free for creditors: the agency you choose pays for the introduction, and no agency can pay to rank.
Cash flow takes the strain when invoices run late, so our guide to cash flow forecasting and late payments is a useful next read.
This is general information, not legal advice. Late payment law and your contract terms depend on the facts, so take advice on your specific agreement before relying on a clause.
Frequently asked questions
What payment terms should a small business offer?
Short, specific and written down before work starts. Many small suppliers use 14 or 30 days from the invoice date, state the exact due date on every invoice, and agree the terms in the quote or contract rather than on the invoice alone. Longer terms are a concession you give to a customer who has earned it, not a default.
Can I charge interest if my terms do not mention it?
On a business-to-business debt, often yes. The Late Payment of Commercial Debts (Interest) Act gives statutory interest at 8% plus the Bank of England base rate, and fixed compensation of £40, £70 or £100 per invoice depending on its size. The rate applies unless your contract sets a different one, and gov.uk notes you cannot claim statutory interest where a contract has a different rate. Stating it in your terms makes it harder to argue about.
Should I ask for a deposit?
For bespoke work, large orders or a customer you do not know, a deposit or stage payments are one of the most effective protections, because you are never owed the whole sum at once. Put the amounts and dates in the contract, and stop work if a stage payment is missed.
Does a credit check guarantee I will be paid?
No. It tells you how a business has paid others and whether anything alarming has been filed, not what will happen next quarter. Use it to decide how much credit to give and on what terms, and look again before raising a limit.
When does prevention stop and recovery start?
When an invoice passes its due date without a reply you can rely on. At that point more reminders cost more than they save: send a dated final request, then escalate to a letter before action and an agency if the debt is undisputed.
