Chasing unpaid invoices can be both frustrating and time consuming for any business. Whether the issue arises from an oversight or a more serious dispute, understanding your legal options at an early stage can make all the difference in recovering what you are owed.
In this guide, we’ll explain the practical actions you can take and when it might be time to get expert help. If do you need immediate support to recover a commercial debt, our experienced commercial debt recovery solicitors are here to support you.
Contents:
- What is the first thing you should do when another business does not pay an invoice?
- Can I charge interest on overdue invoices?
- What are your legal options if the debt is disputed?
- What happens if an unpaid invoice dispute can't be resolved informally?
- What if it’s not possible to resolve an invoice dispute through mediation?
- What should you do if no dispute is identified?
- What if sending a Letter Before Action does not result in a payment?
- What about using the insolvency process?
- How long do I have to take legal action for an unpaid invoice?
- What should you do if the debtor is based overseas?
- How do I prevent payment issues from happening in the future?
- New measures to tackle late payments
- Summary
What is the first thing you should do when another business does not pay an invoice?
You should try and chase up the outstanding invoice, and it is recommended that you put any chasers in writing in order to keep an easily trackable record of all correspondence. A simple email with a copy of the invoice attached might be all that it takes to prompt payment, and it’s also recommended that you keep the tone friendly at the outset; reminding the other party of when the payment due date was and highlighting your company’s late payment terms.
It is a good idea to follow up on an unanswered written chaser with a telephone call, because this might serve the dual purpose of revealing whether your correspondence is going to the right person in the organisation, or whether there’s a dispute of some kind around payment of the invoice.
Can I charge interest on overdue invoices?
You’re legally entitled to charge interest on overdue invoices, and the amount of this interest will depend on whether or not there’s a clause in your contract or terms and conditions of trade with the party who hasn’t paid you. If there is, it should be set out clearly what the rate is and when it becomes added to the late payment – and it’s essential that they’re aware of the existence of this clause before they enter into their contract with you.
If the contract or terms and conditions do not mention anything specific about interest being payable on late payments, you’re able to rely on statutory provisions that are available through the Late Payment of Commercial Debts (Interest) Act 1998. The rate of interest you’re currently permitted to charge on the overdue invoice is 8% above the Bank of England’s base rate. ‘Overdue’ is classed as the day after the date payment was due by – unless your payment terms state something different on this.
To calculate the interest you’re owed, you can use the following formula:
Amount owed to you x the interest rate x the number of days overdue ÷ 365
In addition to charging interest on late commercial payments, you’re also entitled to claim fixed amounts of compensation for your costs of having to chase the funds. These are:
| Amount of debt | What you can charge |
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
If you are a supplier, you’re allowed to claim for reasonable costs every time you try to recover the debt.
What are your legal options if the debt is disputed?
If it comes to light that there’s a problem, try to remain as calm as possible and focus on establishing the grounds for the dispute. This is important because, depending on the seriousness of the grounds, you might need to seek support from a business disputes solicitor as soon as possible to talk through your options and obtain advice on your legal position.
It is worth checking with the non-paying party whether they are open to having an informal discussion about the problem with a view to coming to a resolution without the need to involve lawyers, misunderstandings and crossed wires can happen in business, so if both parties are willing to attempt this, a solution may be found and the relationship can get back on track, or it can be agreed that you will part ways once the problem has been addressed.
What happens if an unpaid invoice dispute can't be resolved informally?
Mediation is an excellent and often successful way of settling conflicts; the aim of the mediator (an independent individual who may or may not be a qualified lawyer) is to encourage the parties to move towards a potential settlement by helping you and the other party talk to each other with a view to coming to an agreement. It’s worth mentioning that very often, the mediation process is more cost-effective, faster and less stressful than going through the court process, and you can read more about this option in our commercial mediation guide.
What if it’s not possible to resolve an invoice dispute through mediation?
There are other forms of alternative dispute resolution (ADR) that might be suitable for your dispute if mediation isn’t successful or if it’s not appropriate for some reason. Some of these methods can be summarised briefly as follows:
- Adjudication: This is a compulsory form of dispute resolution. The costs are usually less than the costs of litigation and the adjudicator reaches a decision on the dispute within 28 days of referral (unless it’s agreed that this time period is extended). The decision of an adjudicator is binding unless revised by an arbitration award or a court judgment.
- Arbitration: It’s fairly common in commercial contracts for there to be a clause specifying arbitration as the default dispute resolution mechanism when there’s an issue between the parties. It’s a confidential process (important in the context of your company’s reputation not being affected by the dispute becoming public) and, whilst not in the strictest technical sense a form of ADR, the parties cannot take legal action in court after a final, binding decision has been made by an independent arbitrator (or panel of arbitrators) unless there are exceptional circumstances. You can read more about this option in our arbitration guide.
- Expert determination: Similarly to arbitration, there’s generally a clause around using this type of ADR in the contract between the parties if it’s likely to lend itself as suitable for resolving a dispute in the kind of industry you and the other party are in. It focuses on key technical issues and is often faster and cheaper.
Ultimately, taking court action may be the only way to resolve the dispute. Seeking legal advice as early as possible can help minimise disruption and keep costs under control for your business.
What should you do if no dispute is identified?
In some cases, there may be no clear explanation for why an invoice remains unpaid. If your chasers haven’t uncovered a dispute, the next step is to speak to a business disputes solicitor, who can send a formal Letter Before Action to the non-paying party.
A Letter Before Action warns the other party that if they don’t settle the invoice, you’re prepared to take legal action. Ideally, it should contain the following content:
- The full name and address of the company that owes you the money
- How they trade (i.e. as a limited company, limited liability partnership or a partnership)
- The total amount outstanding
- How the debt has arisen
- Details of any other interest or charges that are due
- A copy of the agreement under which the debt arose (or in the case of a verbal agreement, information about this)
- Confirmation that the debt is overdue
- Confirmation that court action will be forthcoming if payment is not received within a specified time (usually 14 days)
- Details of how the debt can be paid
- The correct address for a response
It’s a good idea to attach a copy of the outstanding invoice (or statement of account if there are many outstanding invoices) to the Letter Before Action. You should send this letter and any attachments by both email and recorded delivery.
Be aware that there are additional requirements for sending a Letter Before Action under the Practice Directions to the Civil Procedure Rules where a letter is being sent to an individual consumer, as opposed to a business-to-business transaction.
What if sending a Letter Before Action does not result in a payment?
If these steps don’t result in payment, and no dispute has been raised, you can move forward with issuing court proceedings to recover the debt. If the other party does not respond by filing an acknowledgement of service or a defence, then it’s possible to obtain judgment in default and proceed with enforcement action.
What about using the insolvency process?
If no dispute has been raised, it may be appropriate to consider the insolvency/bankruptcy process and either serve a statutory demand or proceed to a winding up petition after giving a warning of your intention to do so.
Statutory demand
Serving a statutory demand can often be a quicker and more cost-effective way to prompt payment than starting court proceedings, at least initially. Once the demand has been formally served by a process server, the debtor has 21 days to pay.
A statutory demand is a serious step. If the debt is not paid, it can lead to bankruptcy proceedings for individuals, or winding-up proceedings for companies.
Winding up petition
If the debtor is a limited company and owes more than £750, you can apply to the court to wind the company up. This is a serious step with significant consequences, including potential personal liability for directors, and is usually treated as such by the debtor.
In most cases, a statutory demand will have been served and the 21-day deadline expired before a winding-up petition is issued. In some circumstances, it is possible to present a petition without first serving a statutory demand (e.g. the debt is clearly due and not disputed). A failure to comply with a statutory demand is generally taken as evidence that the company cannot pay its debts as they fall due.
If the debtor is an individual, the threshold is £5,000. A statutory demand must be personally served, and if it is not complied with within 21 days, you can then present a bankruptcy petition.
Once a petition is issued, the court will set a hearing date. If the debtor does not respond or cannot provide a valid reason for non-payment, the court may make a winding-up or bankruptcy order. Any available assets will then be used to repay creditors, including you.
Insolvency procedures can be an effective way to establish whether non-payment is due to a genuine inability to pay rather than a dispute. It is important to keep in mind that if the debtor is insolvent, there may be little or no recovery, even if a winding-up or bankruptcy order is made.
How long do I have to take legal action for an unpaid invoice?
There’s a six-year time limit (the limitation period) for taking legal action for an unpaid invoice, unless a longer period of time is written into your contract or terms. This timeframe starts to run from the date the debt was due to be paid, although it’s important to bear in mind that if the party who owes you the debt writes to you to acknowledge the debt or makes a partial payment of it, the limitation period resets and begins again.
What should you do if the debtor is based overseas?
If the debtor is based overseas, recovering payment can be more complex and will depend on where the debtor is located. As a first step, check what your contract says about jurisdiction and governing law, as this will determine where any legal action should be taken. You should also consider whether the debt can be pursued in the UK courts or whether you will need to take action in the debtor’s local jurisdiction. Practical issues such as enforcement, cost and timescales become particularly important in cross-border disputes, so it is often worth seeking legal advice at an early stage to assess the most effective and proportionate route to recovery.
How do I prevent payment issues from happening in the future?
To help prevent payment issues arising in the future, it’s important to take a proactive approach at the outset of any new client relationship. Agree clear payment terms before work begins, including when invoices will be issued, when payment is due and any remedies for late payment. For higher-value or ongoing work, carrying out basic credit checks can provide useful insight into a customer’s ability to pay. It’s also advisable to have a written contract in place, setting out the scope of work, payment terms and your rights if payment is not made. Taking these steps can reduce risk and put you in a stronger position if issues do arise.
New measures to tackle late payments
On 24 March 2026, the Department for Business and Trade announced new measures to tackle late payments. Under the plans, large companies will have to pay smaller suppliers within 60 days. In all commercial contracts, late payments will automatically attract interest at 8% above the Bank of England base rate, and a time limit will be introduced for raising a dispute about an invoice. A 30-day period has been proposed, although the final timeframe is still to be confirmed.
Summary
Unpaid invoices can be disruptive, but they don’t have to hold your business back. If informal resolution isn’t possible, early legal advice can help you recover what you’re owed efficiently while keeping costs and disruption to a minimum. Taking the right steps at the right time can also improve your chances of a successful recovery.
Our experienced business dispute solicitors will guide you through the process, explain your options clearly, and advise on the most effective way to recover your money.
