Recover Unpaid Invoices: How to Charge Interest and Late Fees to Protect Your Business

So, what’s the best way to handle it?

• Set Clear Payment Terms from the Start

One of the best ways to prevent unpaid invoices is to be clear about payment terms from the beginning. Before starting any work, ensure your client understands when payment is due, what happens if it’s late, and whether interest or fees will be charged. This can save a lot of headaches later on.

It might sound simple, but many businesses overlook this step, and that’s where things can start to go wrong. By having everything laid out clearly from the start, you’ll have something to refer back to if issues come up down the line.

• Can You Charge Interest on Late Payments?

One of the common questions we hear is, "How much interest can I charge on an unpaid invoice?" In the UK, you’re within your rights to charge interest on overdue invoices under the Late Payment of Commercial Debts (Interest) Act 1998. If you haven’t agreed to a different rate with your client, you can apply a statutory interest of 8% plus the Bank of England base rate.

This interest starts from the day after the invoice becomes overdue. So, if your client was supposed to pay in 30 days and they miss that deadline, you can start charging interest on day 31. This not only compensates for your time waiting but also gives clients a good reason to pay up sooner next time!

• What About Late Fees?

Another effective way to encourage prompt payment is by adding late fees. But how much can you charge for a late invoice?

UK law allows you to charge a fixed sum based on the size of the debt:

• £40 for debts up to £999
• £70 for debts between £1,000 and £9,999
• £100 for debts over £10,000
• 
  

These fees are in addition to any interest you might be charging and should ideally be mentioned in your payment terms from the outset. When clients know there’s a cost for being late, they’re more likely to make paying on time a priority.

• Let Us Handle Your Credit Control

Chasing unpaid invoices can quickly become a full-time job, and it’s not always easy. On top of that, if not handled carefully, it can strain relationships with your clients. That’s where outsourcing your credit control can make all the difference.

At McQueen Partnership, our Credit Control service is designed to take that stress off your shoulders. We’ll manage the whole process, from tracking payment schedules to sending professional, friendly reminders. This way, you can focus on running your business, knowing we’ve got your cash flow covered.

• What to Do When Clients Still Don’t Pay

Even with the best processes in place, some clients just won’t pay. So, what can you do when invoices remain unpaid?

• Escalate the Situation

If a client is ignoring your reminders, it’s time to take a firmer approach. Send a formal letter or email outlining the overdue amount, the interest or fees they owe, and what will happen if they continue to delay payment. Be clear about your next steps.

• Mediation

Sometimes, unpaid invoices are the result of a dispute or the client might be having financial difficulties. In these cases, mediation could help. It’s a way to resolve the issue with a neutral third party like McQueen Partnership , often leading to a settlement that works for both sides without the need for court action.

• Legal Action

If all else fails, legal action may be necessary. For debts under £10,000, you can take the case to the small claims court. For larger amounts, it might require a more complex legal route.

At McQueen Partnership, our Debt Recovery service takes care of this for you. From sending formal letters before action to handling court proceedings, we’ll ensure that you recover what you’re owed, with as little hassle as possible on your part.

• Future-Proof Your Business: Credit Control Consultation

The best way to reduce unpaid invoices is to have a robust credit control process in place. Regularly reviewing your systems can highlight areas where you could improve and help prevent future late payments.

At McQueen Partnership, we offer Credit Control Consultations to help businesses like yours fine-tune their processes. Our team of experts will work with you to create a tailored plan that fits your business needs and ensures you’re protecting your cash flow at every step.

Dealing with unpaid invoices doesn’t have to be a headache. By setting clear payment terms, charging interest and fees when necessary, and outsourcing to professionals like McQueen Partnership, you can ensure you’re paid on time, every time.

If you’re finding it tough to stay on top of unpaid invoices or want to improve your overall credit control, we’re here to help. Our team specialises in Credit Control, Debt Recovery, and Consultation Services, so you don’t have to worry about your cash flow any longer.

Let us take care of the chasing, while you focus on what matters most—growing your business.