How to Chase Unpaid Invoices as a Tradesperson

Late payment is one of the biggest challenges facing sole trader tradespeople. Research consistently shows that small businesses in the UK are owed billions in overdue invoices at any given time, with the construction and trades sectors particularly affected. Understanding why customers pay late helps you choose the right approach to recovering what you are owed.\n\nSome late payments are genuine oversights. The customer forgot, the invoice went to the wrong email address, or they have been away. These are easily resolved with a polite reminder and typically do not require escalation. Other late payments are caused by the customer's own cash flow problems, particularly in business-to-business transactions where your customer may be waiting for payment from their own clients.\n\nA smaller but significant proportion of late payments involve customers who dispute the work or are deliberately avoiding payment. These situations require a more structured approach including documentation of the work completed, formal correspondence, and potentially legal action. The key is to have a clear escalation process so you know exactly what to do at each stage.\n\nPrevention is better than cure. The single most effective way to reduce late payment is to agree clear payment terms before starting work, take deposits on larger jobs, invoice immediately on completion, and follow up promptly when a payment becomes overdue. TradeTally tracks invoice status and sends you alerts when payments are overdue, so nothing falls through the cracks.

A structured escalation process removes emotion from debt recovery and increases your chances of getting paid. Start with a friendly reminder the day after payment is due. A simple email or text message saying that the invoice appears to be overdue and asking if there are any issues is usually sufficient. Many overdue payments are resolved at this stage.\n\nIf the first reminder does not produce payment within seven days, send a second, slightly firmer reminder. Reattach the invoice, state the amount and due date clearly, and ask for payment within seven days. Mention your payment terms and note that you may need to charge interest on overdue amounts if this is stated in your terms.\n\nAt 30 days overdue, escalate to a formal demand letter. This should be sent by email and by post to the customer's address. It should state the invoice details, the amount owed including any statutory interest and compensation, and give the customer 14 days to pay in full. State clearly that failure to pay will result in further action including potential legal proceedings.\n\nAt 45 to 60 days overdue, if the formal demand has not produced results, you need to decide whether to pursue the debt through the small claims court, engage a debt collection agency, or write off the debt. The decision depends on the amount owed, your confidence in the validity of the debt, and the customer's ability to pay.

For business-to-business invoices, the Late Payment of Commercial Debts (Interest) Act gives you automatic rights to charge interest and claim compensation. You do not need to have included these terms in your contract, though doing so reminds customers of the consequences of late payment.\n\nStatutory interest accrues at 8 percent above the Bank of England base rate per annum, calculated daily from the date payment was due. On a 3,000 pound invoice that is 90 days overdue with a base rate of 4.5 percent, the interest calculation would be 3,000 times 12.5 percent divided by 365 times 90 days, giving approximately 92.47 pounds in interest.\n\nThe fixed compensation amounts are 40 pounds for debts under 1,000 pounds, 70 pounds for debts between 1,000 and 9,999.99 pounds, and 100 pounds for debts of 10,000 pounds or more. You can also claim reasonable costs of recovering the debt if these exceed the fixed compensation, but you would need to demonstrate the actual costs incurred.\n\nIncluding the statutory interest and compensation in your demand letter shows the customer that you understand your rights and are prepared to enforce them. In practice, many customers will pay the original invoice amount promptly once they see the additional interest and compensation being claimed, even if you ultimately agree to waive these charges as a goodwill gesture to maintain the relationship.

The small claims court, formally known as the small claims track of the County Court, is designed for straightforward debt claims up to 10,000 pounds. It is specifically intended to be accessible without a solicitor, making it a practical option for sole traders. You can make a claim online through the Money Claims Online service, which is quicker and cheaper than filing paper forms.\n\nThe court fee depends on the amount claimed. Claims up to 300 pounds cost 35 pounds, claims between 300 and 500 pounds cost 50 pounds, claims between 500 and 1,000 pounds cost 70 pounds, claims between 1,000 and 1,500 pounds cost 80 pounds, and claims between 1,500 and 10,000 pounds cost 115 pounds when filed online. These fees are added to your claim and recovered from the defendant if you win.\n\nBefore making a court claim, you must follow a pre-action protocol by sending a letter before action giving the debtor 14 days to respond. This letter must outline the debt, how it arose, the total amount claimed including interest, and state that court proceedings will be issued if payment is not received. Failing to follow pre-action protocol can result in costs penalties even if you win.\n\nMost small claims are settled before reaching a hearing. Many defendants pay as soon as they receive the court papers, as a County Court Judgement (CCJ) against their name affects their credit rating for six years. If the case does go to a hearing, it is usually informal, held in a private room rather than a courtroom, and the judge actively helps both parties present their case.

If you prefer not to handle debt recovery yourself, a debt collection agency can pursue the debt on your behalf. Most agencies either charge a percentage of the recovered amount (typically 10 to 25 percent) or a fixed fee. Some operate on a no-recovery, no-fee basis, though their commission rates tend to be higher.\n\nChoose a debt collection agency that is a member of the Credit Services Association or holds appropriate Financial Conduct Authority authorisation. Avoid agencies that use aggressive or unethical tactics, as their actions are carried out in your name and can damage your business reputation. A professional agency will follow all legal requirements and treat your customers fairly.\n\nIf a debt proves unrecoverable, whether because the customer has disappeared, is insolvent, or the amount is too small to justify the cost of recovery, you can write it off as a bad debt. A bad debt reduces your declared income for the year, which in turn reduces your tax liability. To claim a bad debt deduction, you must show that the debt has been included in your income, you have made reasonable efforts to recover it, and there is a genuine reason to believe it will not be paid.\n\nKeep detailed records of your recovery attempts for bad debt claims. HMRC expects to see evidence that you chased the debt before writing it off, such as copies of reminder emails, demand letters, and any responses from the customer. TradeTally logs all communication linked to each invoice, providing the evidence trail HMRC requires.