Eliminating late payments in your small business

According to government figures, late payments impact over 1.5 million businesses, cost the economy almost £11 billion per year, and force 38 UK businesses into administration every single day.

When we look at the trades in particular, late payments have long been – and continue to be – a significant problem. A Direct Line report published in January 2026 revealed that an astonishing 68% of tradespeople are currently chasing late payments, with almost a quarter (23%) juggling four or more unpaid invoices at a time. Shockingly, the tradespeople surveyed by Direct Line were owed an average of £2,023 in late payments.

So, what can be done about it? Are late payments, as stated by half of businesses in a recent study from the Federation of Small Businesses and GoCardless, simply “an inevitable cost of doing business”?

Maybe. But there are certainly methods of reducing late payments that have been adopted successfully by some of NICEIC’s certified businesses, and which may work for your business, too. Let’s get into them.

1. Be clear on payment terms

Having clear payment terms and sharing them with customers as soon as work has been agreed, has worked well for NICEIC-certified MM Electrical and Design. Kirsty Elbourn, an electrician at the company, says that the introduction of a terms and conditions document and a list of frequently asked questions (FAQs) have all but eradicated late payments.

She comments, “Lots of people don’t realise you need to turn the power off for certain jobs, so it’s useful to warn them in advance.” She continues, “But the FAQs also clearly state that payment is due immediately upon completion of the work, and that we only share the relevant certificates once payment has been received. Even small electrical jobs require a minor works certificate, so that’s powerful leverage.”

2. Introduce same-day payment

While it used to be common to have a 30-day payment schedule, this leaves the door wide open to late payments. Even if they don’t do it intentionally, customers are more likely to forget about making a payment if they aren’t prompted to do so immediately on completion of the works.

Stephen Ogden of SJO Home Services, an NICEIC-certified business based in Leighton Buzzard, says: “On the whole, most of my customers pay on the same day. I was using an invoicing app that defaulted the credit terms to eight days, but I got them to change it.” If he doesn’t get paid, he’ll give the client a nudge. “I give people a day or two but then I’ll send an overdue notice,” he adds.

With portable card machines now commonplace, another option is to get the client to pay by card while you’re still on site – particularly for smaller jobs. This further reduces your business’s exposure to late payments.

3. Invest in newer accounting tools

Accounting solutions like Xero or QuickBooks have built-in tools for automating the invoicing process. Many of these tools have the ability to instantly create and send quotes and invoices, identify late payments, and send reminders to customers until payment is collected – all without you having to lift a finger.

“I used to type my invoices out with one finger,” remembers Alex Cowton, founder of York-based ABM Electrical. “Now, we use Xero for all our quotes and invoices, which has dramatically cut down the time I spend invoicing and chasing payments.”

Entrusting the process to accounting tools means businesses have more time for jobs that actually bring in money. “When you doing six jobs in a day, you’re too busy to sit and send reminders,” says Alex.

4. Take a deposit for larger jobs

For larger jobs, taking a deposit upfront can be a good way of reducing the financial risk to your business.

Alex agrees, saying, “If a job comes in for a new customer that’s worth more than £2,500, we take a 25% deposit. Most people are happy to do that, and we don’t lose out on any work where we charge a deposit.”

However, charging a deposit for smaller, low-value jobs can give the customer the wrong impression. Stephen, who we heard from earlier in this article, notes: “I don’t take deposits upfront. But I don’t take on huge jobs, so I don’t have to. For me, taking payment at the end shows professionalism, otherwise they might think you can’t afford to pay for the materials.”

A fine balance, then, between reducing your business’s exposure to financial risk and striking the right note with customers.

5. Know when to let go

For smaller debts, businesses may need to weigh up the value of late payments with the time and effort required to chase them. Not to mention the reputational damage that can occur when customers leave a bad review or post derogatory things about your business on social media.

Rob Driscoll, Director of Legal & Business at the Electrical Contractors Association (ECA), comments: “Dealing with consumer debts for lower values is relatively simple compared to working for larger contractors. Consumers are generally willing to pay deposits or upfront for materials to secure the works, and most expect to pay digitally on completion.” He continues: “Many are now willing to subscribe to an annual care package arrangement, which can also help regulate cash-flow.

“The real challenge is working under contracts for other businesses, where you are paid under a system of payment in agreed arrears, meaning you are always chasing debt. Anything under £10k and you’re looking at the small claims court, which means your exposure to costs is fixed on a sliding scale so you can do it yourself without lawyers. You’ll still have to spend time pursuing the claim, potentially losing money by spending more time off the tools.

“Worse is debts over £10k, which are likely to get you involved in the court system, costing you a disproportionate amount and requiring solicitors and barristers. This means debts of £10k – 80k could be cost-prohibitive to chase.”

He concludes, “So, if you are working for a larger contractor, think very carefully about the period of delayed payment you agree to, as this represents your cash-flow exposure.”

However, it’s worth knowing the government’s Money Claim Online tool allows you to upload your small claim to court if you’re pursuing a debt of less than £10,000. This can be very effective in certain circumstances. Where the debt is not disputed, a winding-up petition threatening bankruptcy or liquidation may also leverage payment quickly.

Lean on the law

If you’re a subcontractor chasing a late payment from a business, there is legislation in place to support you in recovering the debt.

For contracts with businesses, the Late Payment of Commercial Debts (Interest) Act 1998 grants you the right to either charge interest and claim a fixed sum of compensation on each overdue invoice.

If you can prove you had a contract but it’s silent on payment, a payment is considered late 30 days after the invoice is received or you deliver the goods or services (whichever is later). You can charge statutory annual interest of 8% above the current Bank of England base rate, and claim a fixed sum as well as your reasonable costs of recovering the debt. You can find out more on the government website.

Currently, however, loopholes in the law mean that larger businesses can force small contractors to nullify their right to these statutory measures through a clause in their contract. But this won’t be the case for much longer.

Government announces further measures to tackle late payments

In November 2024, the government launched the Fair Payment Code, which rewards signatories with a gold, silver, or bronze badge according to the percentage of invoices they pay on time, with a particular emphasis on paying small suppliers. And in July 2025, it went further with the publication of the Small Business Strategy and Late Payment Consultation: a crackdown on late payments it said would constitute the most significant legislative reforms in 25 years. This included:

• stricter maximum payment terms
• enhanced powers for the Small Business Commissioner
• mandatory interest on late invoices – no more ‘contracting out’
• fines against large companies who persistently pay invoices late
• increased scrutiny of large companies’ payment practices at board level
• options to reform or ban cash retentions in construction contracts.

Positively, this last measure relating to cash retentions – a payment practice whereby a construction business will withhold a percentage of the contract value from the supplier to ensure project completion and cover defect repairs – is one that has been strongly lobbied for by the ECA for many years.

Rob Driscoll, having chaired a Cabinet Office SME payment group and been involved in creating these reforms for over a decade, said: “Government’s engagement on how to reform retentions marks a seminal once-in-a-generation moment for the industry to come together and shape reform in an area which has stifled growth, innovation and training, crippling supply-chain cash-flow and amplifying the repercussions of insolvency for over a century.”

The government consultation on the proposed measures concluded in October 2025. The government has yet to address the feedback received from the consultation, but NICEIC will keep you updated as and when further updates are available.

No silver bullet

Unfortunately, there is no silver bullet when it comes to tackling late payments. However, by being consistent on your terms, getting as much upfront as is reasonable, and introducing instant payments, you can greatly reduce the financial risk to your business.

For further advice and guidance in this area, you can visit the ECA’s payment advice page.