The invoice went out on 3 April on thirty-day terms. It is now 19 June. You have emailed accounts twice and had no reply. The customer is perfectly friendly when you see him, says he will chase it, and has said that on two occasions.
Nothing about this situation is unusual, and very little of it is personal. In most companies the purchase ledger pays the suppliers who ask, in the order they ask, and a supplier who does not ask joins the bottom of a list that never clears.
Terms only work if they say something
Start with what you agreed, because the rest of the process depends on it.
Payment terms should be in writing, on the quote, on the order confirmation and on the invoice, and they should state a date rather than a period where possible. "Payment due 3 May 2026" is harder to misread than "30 days net".
Your terms and conditions should also cover what happens if payment is late: that interest and compensation will be charged, that work may be suspended, that title in goods does not pass until payment clears if that is appropriate to your trade. A retention of title clause is worth having drafted properly if you supply goods, because it is the difference between being a creditor and being an owner.
Then make it easy. Bank details on the invoice. A reference the customer's system can use, usually their purchase order number, because an invoice without a PO number in a company that requires one will not be paid and nobody will tell you. Ask at the point of order who approves the invoice and what their email address is, and send it to them as well as to accounts.
Invoice promptly. A business that invoices on the last Friday of the month has already added up to four weeks to its own terms.
Statutory interest exists and is rarely used
Under the Late Payment of Commercial Debts (Interest) Act 1998, where both parties are acting in the course of a business, you are entitled to claim interest on a late commercial debt at 8% above the Bank of England base rate, together with fixed compensation for the cost of recovery.
The fixed sums are set by the amount of 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. If your reasonable recovery costs exceed the fixed sum, you may claim the difference.
These rights apply whether or not your contract mentions them, and a contractual term that ousts them can be challenged as unfair. Where the parties have agreed a different rate, it has to be a substantial remedy for late payment or it can be set aside.
Most suppliers never invoke any of this because they fear the relationship. The practical use is not always to collect the interest. It is that a customer who is told, calmly and in writing, that statutory interest is now accruing tends to find the invoice. You can waive it later as a gesture, which is a useful card.
Larger companies are also subject to the Reporting on Payment Practices and Performance Regulations 2017 and must publish their payment performance twice a year. Those reports are public. Looking up a prospective customer's average payment days before you extend credit takes two minutes and occasionally changes the terms you offer.
An escalation ladder gets you paid without a confrontation
The value of a ladder is that it is a process rather than a mood. It happens on a schedule, the same way for everyone, so nothing is personal and nothing gets forgotten.
- Seven days before due: a short, friendly confirmation that the invoice falls due next week, with the reference. This catches missing PO numbers and unapproved invoices while there is still time.
- Day one overdue: a statement of account by email, no accusation, asking for a payment date.
- Day seven: a telephone call, to the person who approves rather than to accounts. Ask one question: what date will it be paid. Get a date, write it down, and email to confirm the date they gave you.
- Day fourteen: a written notice that statutory interest and compensation under the 1998 Act are now being applied, and that further work is suspended pending payment. Suspension is the part that produces results, and you must have the contractual right to do it.
- Day thirty: a letter before action, setting out the debt, the interest, the compensation and a deadline of fourteen days, and stating that proceedings will follow. If your customer is a sole trader or an individual, the Pre-Action Protocol for Debt Claims applies and gives them thirty days, with an information sheet and a reply form.
Then act on it. A letter before action that is not followed by action teaches the customer exactly what your threats are worth, and word travels between finance departments.
For undisputed debts, the County Court route through Money Claim Online is cheap and largely administrative. Claims up to £10,000 are normally allocated to the small claims track, where costs recovery is limited but so is the complexity. Where the debtor is a company and the debt is undisputed and above £750, a statutory demand under the Insolvency Act 1986 is a very serious step that frequently produces payment within the twenty-one days, and should not be used where there is any genuine dispute, because that is an abuse of process and can be met with an injunction and a costs order.
Knowing when to stop trading with someone
At some point the calculation changes. If a customer represents 30% of your turnover and pays at ninety days, you are not running a business with a large customer, you are providing that customer with unsecured finance and carrying the risk of their failure.
Signs to act on: a payment plan they have already broken, a request to extend terms rather than pay, County Court Judgments visible against the company, accounts filed late at Companies House, and a change of finance contact with no handover.
What to do: stop extending credit before stopping the relationship. Move them to payment in advance or payment on delivery for new work while the old debt is on a plan. That keeps the trading relationship alive without increasing your exposure, and a customer who will not accept pro forma terms has told you something useful.
And do the arithmetic on what bad debt costs. On a 10% net margin, a £5,000 write-off requires £50,000 of additional sales to replace. That is a strong argument for credit checking at the start rather than chasing at the end.
Where this shows up in the game
Business Baron gives your customers payment behaviour rather than instant settlement. Trade customers stretch you, some fail owing you money, and a business that never chases quietly funds everybody else in its supply chain. Chasing too hard costs you the account, which is the trade-off the game is actually about. One bad debtor in your second year is usually enough to make the point.