Late payments are more than just an annoyance—they're a critical threat to your business survival. Every day that money sits in someone else's account instead of yours, you're subsidising their business while yours struggles. The invoices pile up, the excuses multiply, and your ability to plan, invest, and grow withers away.

The brutal reality? Research from Intuit QuickBooks found that late payments cost UK small businesses an astonishing £23.4 billion a year. You've earned that money. You shouldn't have to beg for it.

This comprehensive guide from Garfield AI, the world's first SRA-regulated AI law firm, delivers a proven four-phase system for collecting unpaid invoices decisively and professionally. You'll discover how to prevent payment problems before they start, implement systematic collection processes, and—when necessary—take legally-compliant action that gets results while preserving valuable client relationships.

Phase 1: Proactive Prevention – Secure Your Finances Before You Start

The best way to deal with an unpaid invoice is to stop it from ever becoming a problem. It all starts with a rock-solid foundation before you even begin the work. This isn't about being pessimistic; it's about being a professional who protects their business.

Why a Vague Agreement Isn't Enough

A handshake deal or a quick email exchange feels easy at the start, but it's a recipe for disaster later. When there's no formal agreement, there’s no single source of truth. The client might "forget" the due date, dispute the scope of work, or simply ignore your payment requests.

A strong, clear contract is your first and most important line of defence. It sets expectations, defines the rules of engagement, and gives you a legally enforceable document to rely on if things go wrong. Our approach to this is shaped by deep legal expertise, a principle established by our founder Philip Young, who understands that prevention is the most powerful legal strategy.

The 4 Must-Have Clauses for Your Contract

Your contract doesn't need to be 50 pages of legal jargon. But it absolutely must include these four things to protect your cash flow.

Payment Terms: This is the most critical part. Be explicit. Your contract must state your clear payment terms, including the invoice due date (e.g., whether due after fifteen days, thirty, some other period, or due on receipt), the exact amount due (for one off transactions) or the price or a formula for working out the price, and the accepted payment methods (e.g., BACS transfer, Stripe). Also bear clear to cover when your right to raise invoice(s) arises. Don't leave any room for interpretation.
Late Payment Penalties: What happens if they don't pay on time? Your contract should state this clearly. Thanks to The Late Payment of Commercial Debts (Interest) Act 1998, UK businesses have a statutory right to claim interest on overdue invoices owed by other businesses and this is currently set at 8% plus the Bank of England base rate. Including this clause in your contract shows you're serious and gives you a legal right to compensation for the delay. Plus, this Act gives you an additional right to an amount of compensation for late payment.
Scope of Work & Deliverables: Clearly define what you will deliver and when. This prevents "scope creep.” When a client keeps asking for more work that wasn't originally agreed and where the price is not then clearly agreed upon this is a common cause for payment disputes. If they want more, you can create a new agreement for the additional work.
For international customers. If your customer is overseas, think about payment protection at the outset - do you need a letter of credit or bank guarantee or other form of security for payment? Clearly define that English law governs the contract and think carefully about what county’s courts, or international arbitration, should deal with any disputes.

Simple Steps for Vetting New Customers

You don't need to hire a private investigator, but a little due diligence on new customers can save you a world of pain. Before you commit to a project, take these simple steps:

For larger businesses: Run a quick credit check using a service like Experian or check their filing history on Companies House. It's often free and can reveal red flags.
For smaller businesses or individuals: Ask for trade references—other suppliers they've worked with. A quick call can tell you a lot about their payment habits.
Trust your gut: If a customer is difficult, demanding, or vague about payment from the very beginning, it's often a sign of trouble ahead. It's better to walk away from a bad customer than to chase them for money later.

Phase 2: Systematic Invoicing – How to Get Paid on Time, Every Time

Once the groundwork is laid, getting paid on time becomes a matter of process, not luck. Professional, clear, and consistent invoice chasing removes friction and makes it easy for your customers to pay you promptly.

Anatomy of the Perfect Invoice

An invoice isn't just a request for money; it's a legal document. To be enforceable and easy to process, it must contain specific information. Think of it as a checklist for getting paid.

Your invoice should always include:

The word "Invoice" clearly displayed.
A unique invoice number.
Your company name, address, and contact information.
The customer's name and address.
The date the invoice was issued.
The payment due date.
A clear description of the services or goods provided.
A detailed breakdown of costs (e.g., hours x rate, item x cost).
Any applicable VAT and the total amount due.
Your payment details (bank account number, sort code, etc.).
Any applicable Purchase Order (PO) number the client provided.

Setting Up Your Automated Reminder Workflow

Manually tracking and chasing invoices is a huge time-drain. An automated reminder sequence is your secret weapon. It ensures nothing slips through the cracks and keeps the process professional and unemotional.

Here’s a simple, effective workflow you can set up:

Reminder 1 (Pre-Due Date): Send a polite, friendly email 3-5 days before the due date. This isn't a chase; it's a helpful "heads-up." Frame it as a customer service touchpoint, confirming they have everything they need to process the payment.
Reminder 2 (On Due Date): If payment hasn't arrived, send a professional notification on the morning it's due. The tone is still friendly but clear: "Just a reminder that invoice #123 is due for payment today."
Reminder 3 (Post-Due Date): A few days after the due date, send the first gentle nudge. It acknowledges the payment is now overdue and asks if there’s a problem.

This simple sequence works wonders. The good news is you don't have to do it yourself. Technology can handle this entire process for you and many accounts packages like Xero, Sage and Quickbooks provide tools to automate this.

Make It Easy for Them to Pay You

The single biggest reason for late payments after unclear terms is friction. If paying you is a hassle, it will go to the bottom of your client's to-do list.

Reduce that friction. Offer multiple payment options clearly on your invoice:

Bank Transfer (BACS)
Credit/Debit Card via i.e. a payment gateway like Stripe or PayPal
Direct Debit for recurring work

Adding a "Pay Now" button to your digital invoice that links directly to a payment portal can dramatically speed up how quickly you get paid. The easier you make it, the faster the money hits your account.

Phase 3: Managing Overdue Payments – The Professional Escalation Plan

Even with the best prevention and systems, you'll sometimes face an overdue payment. The key to chasing late payments is to have a clear, pre-defined escalation plan. This keeps emotion out of the equation and demonstrates that you are a serious business owner.

Step 1: The Firm (But Fair) Reminder Email (7 Days Overdue)

The tone now shifts from a gentle reminder to a direct inquiry. It's still professional, but the message is clear: the payment is now late, and you need to know when to expect it.

Here’s a simple template:

Subject: Overdue Invoice #123 - [Your Company Name]

Dear [Client Name],

I hope you're having a good week.

I'm following up on invoice #123 for [Amount], which was due for payment on [Due Date] and is now 7 days overdue.

Please could you let me know when we can expect to receive payment? If you've already sent it, please accept my thanks and please disregard this email.

Best regards,
[Your Name]

Step 2: Picking Up the Phone (14 Days Overdue)

If your email gets no response, it’s time to pick up the phone. An email is easy to ignore; a phone call is not. It's often the fastest way to cut through the noise and understand what’s really going on.

Your goal for the call is simple: get a firm commitment for a payment date.

Stay calm and professional: Don't be accusatory. Start by politely referencing the invoice and your previous emails.
Ask open questions: "I'm calling about invoice #123, which is now overdue. I was hoping you could give me an update on its status?"
Listen: There might be a legitimate reason for the delay (e.g., they never received the invoice, or there’s an issue with the accounts department).
Get a date: Don't end the call without a specific date. "Can I confirm you'll be making the payment by this Friday, the 15th?"
Follow up: After the call, send a brief email summarising what was agreed. "Thanks for the call. As discussed, we look forward to receiving payment for invoice #123 by Friday, 15th."

Step 3: The polite chaser (30 Days Overdue)

If the promised payment date comes and goes, your communication needs to become more formal. This isn't just another email; it's a letter and so conveys more formality. It should be sent via email and, for added impact, by post.

This letter should:

Reference the invoice number(s) and
If you think appropriate, add the statutory late payment interest you are now entitled to charge.
Set a new, final deadline for payment (e.g., 7 days from the date of the letter).
Mention that failure to pay by this date will result in the matter being escalated further.

This step often prompts payment from customers who may not have taken the earlier reminders seriously. For added formality, you can use Garfield AI to draft and send these letters on its letterpaper. This is very effective because customers can take a letter from a regulated law firm far more seriously than any other form of communication.

Phase 4: The Legal Pathway – What to Do When They Still Don’t Or Won't Pay

When you've exhausted all professional reminders and the customer still refuses or fails to pay, it's time to begin the formal legal process. This phase isn't about being aggressive; it's about calmly and professionally enforcing the terms of your agreement.

What is a Letter Before Action (LBA)?

The next official step is sending a Letter Before Action (LBA). This is a formal legal document and a critical part of the pre-action protocol for debt recovery.

Under the court's Civil Procedure Rules on Pre-Action Conduct and Protocols, you are required to send an LBA before you can file a Court claim. It shows the Court you made one final, serious attempt to resolve the issue and gives the customer a final warning.

An LBA must contain:

A clear statement that it is a "Letter Before Action."
The exact amount of the debt, including any late payment interest.
A reference to the original invoice.
A deadline for payment (and you typically have to give the customer 30 days to respond).
An explicit statement that if payment is not made by the deadline, you will issue court proceedings without further notice.

This letter carries significant legal weight and is often enough to secure payment, as it signals that your next step is the court. Garfield AI will draft Letters Before Action for you simply, quickly and inexpensively.

A Simplified Guide to Small Claims Court

If the customer does not pay in response to the LBA, your next step is filing a claim with the small claims court for an unpaid invoice. This process is designed for individuals and small businesses to resolve disputes up to £10,000 in England and Wales without needing expensive legal representation.

Cost: The process is designed to be affordable. Court fees are based on the size of your claim, starting from just £35 for claims up to £30 and are recoverable from the customer if you prevail.
Timeline: It can take between weeks and months to get a resolution, depending on whether the customers pays the claim or ignores it. Ministry of Justice statistics show that about 66% of all small debt claims usually result in a default judgment and only about 5% are defended. If the customer disputes the claim then it can take longer as the timing on this depends on how quickly the Court can schedule a one hour hearing.
Documentation: This is where your diligence in Phase 1 pays off. You'll need your contract, the invoice(s), your record of communications (emails, call notes), and a copy of your Letter Before Action. You may need other documents to prove your case and Garfield AI can guide you through this.

The thought of Court can be intimidating, but taking the first formal step doesn't have to be. Using a service like Garfield AI can be a highly cost-effective and time saving way to send a legally compliant Letter Before Action, showing the debtor you are serious and preparing you for the next stage if needed.

Frequently Asked Questions (FAQs)

Here are answers to some of the most common questions business owners have about what to do when a customer doesn't pay.

Can I legally charge interest on a late invoice in the UK?

Yes, absolutely. If your customer is a business, under The Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest, which is currently 8% plus the Bank of England base rate. If your customer is not a customer, the Court has a discretionary power to award you interest under s.69 of the County Courts Act 1984. That said, iIt's always best to include an express right to interest in your contract so the customer is aware of it from day one and so that you have agreed your entitlement.

Will chasing an unpaid invoice ruin my customer relationship?

Not if it's handled professionally. A systematic, calm, and fair process like the one outlined here usually preserves respect. A customer who values your work or who is honourable will understand that you need to be paid for it. The relationship typically breaks down only when communication becomes emotional and inconsistent, or when a customer is dishonourable and simply has no intention of paying you.

How much does it cost to take someone to small claims court?

The court fees depend on the amount you are claiming. For small debts, the fees can be as low as £35 and are recoverable from the debtor if you prevail. The process is specifically designed to be accessible and affordable for small businesses, but it is crucial to have all your documentation in perfect order before you start.

How long do I have to chase an unpaid invoice?

In England and Wales, the statute of limitations for most debt recovery is six years from the date the payment was due or last acknowledged. For contracts that are in the form of a deed, the limitation period is extended to twelve years. However, you should never wait that long. The chances of recovering a debt decrease with every month that passes, so it is always best to act as quickly as possible.

Conclusion

You don't have to live with the constant stress and cash flow uncertainty of collecting unpaid invoices. By implementing a robust, four-phase system—Prevention, Systematic Invoicing, Professional Escalation, and Legal Action—you can take back control.

Let's recap the key takeaways:

A strong contract is your most powerful tool. It sets clear expectations and is your first line of defence.
Automation is your best friend. It saves you countless hours and ensures a consistent, professional follow-up process.
A professional, tiered escalation plan preserves relationships. It keeps emotions out of the process and shows you are serious.
Knowing your legal options gives you confidence. Understanding tools like the Letter Before Action empowers you to act decisively when you need to.

Stop chasing and start getting paid. See how the Garfield AI platform automates this entire legally-fortified process, from smart reminders to formal legal action, so you can focus on what you do best: running your business.

Get Unpaid Invoices Paid Fast | Legal Guide (2025 Update)