How to deal with late payments

22/09/2025 | Santander X

Find out how the Office of the Small Business Commissioner (OSBC) can help you with late payments.

As a small business owner you know the headaches that late payments cause. The facts speak for themselves.

According to the OSBC, in 2023:

  • 15% of SMEs said cash flow and late payments were obstacles to running their business
  • small businesses were owed on average around £22,000 in late payments, around 18% of invoices. The average time to pay was 32 days.

 

So how can you reduce the chances of this affecting you?

At first glance it might not seem like something you can control. But there are some things you can do.

  • Carry out due diligence when you get an order from a new or existing customer. This means checking:
    • their credit rating (search for online tools)
    • the Companies House number against the purchase order
    • who is placing the order
    • who to contact about payment and their contact details.
  • Consider pro forma sales. This means sending your invoice before you deliver your goods or services to a customer for first orders. This is normal business practice. New customers need to build up a credit rating with you.
  • Agree payment terms when you take the order. State the payment due date clearly.
  • Consider taking deposits and incremental payments to keep a steady cashflow.
  • Send invoices and statements promptly. Making sure these are raised on time helps you manage your cash flow.
  • Provide regular statements and keep in touch with your customers.
  • Remember – a sale does not count until it's been paid for.
  • Don’t be afraid to withhold goods or services until you’re paid.
  • Understand your customer. Look out for any payment requirements. These are common in public sector contracts.
  • Consider using invoicing software to keep on top of your invoicing. They'll keep you organised and free up your time to run your business.

 

 Charge interest on the late payment

You can claim interest and debt recovery costs if another business is late paying for goods or a service. This is called ‘statutory interest’. It is 8% plus the Bank of England base rate for business-to-business transactions. You can’t claim statutory interest if there’s a different rate of interest in a contract.

You can charge a business a fixed sum for the cost of recovering a late commercial payment. This is on top of charging interest. The amount you’re allowed to charge depends on the amount of debt. You can only charge the business once for each payment.

Draft a new invoice providing the new total amount due. This will be the original amount plus interest and compensation. Send this with a letter explaining that you weren't paid as per the agreed credit terms. Use this calculator to work out the interest and recovery charge. 

 

Use mediation

A professional mediator, agreed on by both you and your debtor, can help you to work out a solution. You can do this before taking other action. Or you can pause any legal action you’re taking to mediate. You can choose when, where and how mediation happens.

Find a mediator in:

 

Make a complaint

You should try to resolve the payment issue with your customer first. Do this as early as possible, and within 12 months of the payment being due. If you’ve not been able to resolve things, the OSBC might be able to help.

 

Fair Payment Code

The OSBC has launched the new Fair Payment Code. It’ll encourage businesses across the UK to pay on time.

 

How we can support you

We’ve put together some more information about the code.

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