The late payment crackdown: what it means for UK tradespeople

Late payment is the quiet tax on running a trade business. You have done the work, paid for the materials and covered the fuel, and then you wait weeks for money that is already yours. It hurts cash flow, it costs you sleep, and for a sole trader it can be the difference between a good month and a bad one. The good news is that the law is on your side, and it is being tightened. Here is where things stand and what you can do about it.

Build a buffer into your pricing. A rate that only just covers the job leaves nothing to absorb a late payer. The free day rate calculator shows what you need to charge once tax, overheads and unbillable days are in, and there are three more free calculators alongside it.

Key takeaways: On business-to-business invoices you have a legal right to charge interest at 8 percent above the Bank of England base rate, plus a fixed sum of £40, £70 or £100 toward recovery costs depending on the debt size. Domestic customers are covered by your contract terms instead. Clear terms and deposits up front prevent most problems before they start.

The rules as they stand

Under the Late Payment of Commercial Debts (Interest) Act, if another business pays you late you can charge statutory interest of 8 percent plus the Bank of England base rate. On top of that you can claim a fixed sum toward the cost of chasing the debt: £40 for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more.

This is a right, not something you have to negotiate. It applies automatically to commercial transactions unless your contract sets out a different, genuine remedy. You do not always have to enforce it, but the fact that you can is a powerful nudge in a reminder.

Business customers and domestic customers are different

The distinction matters. The Act covers business-to-business work, so if you invoice a builder, a letting agent or another company, the statutory interest and compensation apply.

When you work directly for a homeowner, that is a consumer transaction and the Act does not apply in the same way. Your protection there comes from the payment terms in your own contract or quote. That is exactly why spelling out your terms in writing before you start matters so much for domestic jobs. If your quote says payment is due within seven days and sets out a late fee, you have something to stand on.

What the crackdown is trying to change

Late payment has been a running sore for small businesses, and the government has been steadily toughening the rules. The direction of travel is toward shorter maximum payment terms, more pressure on large companies to pay their smaller suppliers on time, and more transparency, with big firms having to report on how promptly they actually pay.

For a sole trader the detail matters less than the mood music: chasing what you are owed is increasingly seen as normal and reasonable, not pushy. You are not being difficult by expecting to be paid on time.

How to make late payment less likely

• Agree terms in writing. Put your payment terms on the quote and repeat them on the invoice, so there is no confusion about when money is due.

• Take a deposit. Asking for a deposit before you start covers your materials and weeds out customers who were never going to pay.

• Invoice straight away. The clock only starts when the invoice goes out. Send it the day the job finishes, not at the weekend when you catch up on admin.

• Make paying easy. A payment link or clear bank details removes the last excuse for delay.

What to do when an invoice goes overdue

1. Send a friendly reminder the day payment falls due. Most late payments are oversights, not refusals.

2. If it is still unpaid after a week, send a firmer reminder that mentions your right to charge statutory interest.

3. Add the interest and the fixed compensation to the amount owed, and reissue the invoice.

4. Send a formal letter before action, making clear you intend to pursue the debt.

5. As a last resort, use the small claims process through Money Claim Online for straightforward debts.

Wording for a firm but fair reminder

You do not need to be aggressive to be effective. A short, businesslike note usually does the job: “Hi Dave, invoice 1042 for £850 was due on the 10th and is now overdue. Could you arrange payment this week? Please note that late commercial payments can carry statutory interest, though I would much rather keep things simple. Let me know if there is any problem.” Polite, clear, and it leaves no doubt that you are keeping track.

For ready-to-use wording and a clear escalation path, read how to chase an unpaid invoice, and start with a stronger invoice template for tradespeople on every job.

Getting paid on time is mostly about systems, not confrontation. Send clean invoices promptly, chase them consistently, and know your rights. Tools built for tradespeople, such as TradePilot, can send those reminders on a schedule so the chasing happens whether or not you remember, but the principles work with any invoice.