Getting paid on time: Why every tradesperson needs to know their legal rights
04 June 2026Posted by:
Helen Devery
Consultant, Clyde & Co LLP
In this guest blog, Helen Devery, Consultant at Clyde & Co, outlines the legal rights, protections and practical steps available to small businesses dealing with late payments.
Understanding your legal rights as a tradesperson
Managing cash flow is the lifeblood of any small business, yet late payments cost the UK economy £11 billion every year. Late payments also force 38 businesses to close each week because they are not paid on time, according to the Small Business Commissioner.
In the UK, the legal framework governing commercial contracts and debt recovery provides several mechanisms to ensure you are paid on time.
At Clyde & Co we advise that a proactive approach to contract management and a clear understanding of your statutory rights are essential for maintaining a healthy balance sheet.
Why strong contracts matter
The foundation of timely payment begins with the contract.
The terms of your agreement, specifically the payment terms, are paramount.
It is vital to ensure that your invoices are clear, accurate and issued promptly upon the completion of services or delivery of goods.
If a customer fails to pay, you have the right to claim interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
This legislation allows businesses to charge interest at 8% above the Bank of England base rate on late commercial payments, alongside fixed-sum compensation for debt recovery costs.
Important new measures to combat late payment
In May 2026, the Small Business Protections Bill (formerly known as the Commercial Payments Bill), which seeks to tackle late and poor payment practices, has been introduced to Parliament.
The Bill builds upon the Late Payment of Commercial Debts (Interest) Act 1998. It seeks to give stronger powers to the Small Business Commissioner including the power to investigate businesses suspected of poor payment practices to adjudicate payment disputes outside of the court process, and to impose financial penalties on businesses that persistently pay their suppliers late
Practical steps to reduce exposure to late payments
For small business owners, we recommend the following effective steps to mitigate the risk of late payment:
1. Carry out customer checks: Before entering a contract, run a credit check on your customer. Use free resources such as Companies House to check for insolvency notices or past payment issues.
2. Get your terms in writing: Ensure your terms and conditions are explicitly stated in your written agreements. This includes the payment deadline and the consequences of late payment.
3. Act quickly on overdue payments: If a payment is not received by the agreed deadline, do not wait. Send a formal reminder immediately. If the issue persists, a solicitor’s letter can often prompt payment without the need for court proceedings.
4. Consider a statutory demand: For significant debts, you may issue a Statutory Demand. This is a formal request for payment that gives the debtor 21 days to pay or reach an agreement before you can consider more severe actions, such as winding up the company or bankruptcy proceedings.
5. Use available support resources: Before escalating to court, consider using the Office of the Small Business Commissioner (OSBC) which offers a free, confidential service to help small businesses resolve payment disputes with larger customers.
6. Try mediation before court: Mediation is when an impartial professional (the mediator) helps both sides work out an agreement. Its confidential and usually quicker and cheaper than the court process. If you are making a claim of £10,000 or less and the debtor (defendant) disputes it, you will be told to attend mediation. The court will organise this and its free. If your claim is above £10,000 the court will offer you mediation or you can arrange this yourself if preferred. You can find further details about this process here.
If court action becomes necessary
If you initiate legal action, ensure you have documented all attempts to resolve the dispute, including emails and letters of negotiation. These will help to demonstrate what attempts you have made to resolve the matter before taking any court action.
For claims exceeding £10,000 in England and Wales, we strongly advise seeking legal advice to assess your options and the potential costs involved.
About the author
Helen Devery
Consultant, Clyde & Co LLP
Helen has vast experience in the most severe corporate and gross negligence manslaughter offences and represents clients during major inquests.
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