Chasing unpaid invoices: late payment interest and automatic reminders

I'm Managing Partner of a two-office law firm in East Sussex, so chasing money and making sure everyone gets paid are part of my job too. Everything below comes from GOV.UK, the legislation and the software makers' own help pages.

When is an invoice legally late?

An invoice is late the day after the payment date you agreed. If you never agreed one, the law says payment is late 30 days after the customer receives your invoice or you deliver, whichever is later. Agreed terms between businesses should usually be no more than 60 days, unless longer terms are fair to both.

Every reminder and interest calculation hangs off the due date, so put your terms on your quote and on the invoice itself. GOV.UK sets out what an invoice must include, such as a unique number, the supply date and the total owed.

How do you chase unpaid invoices without falling out?

Keep it polite, predictable and mostly automatic: a short heads-up before the due date, a reminder on the day, then reminders at set intervals. A person phones once it's a week or two overdue. Only after that does a firm letter mention interest and next steps. Treat the first reminders as admin, not an accusation.

Knowing how to chase unpaid invoices mostly comes down to doing it the same way every time. Here's the routine I'd suggest, as a starting point rather than a legal requirement. Adjust the days to your own terms.

Two rules make it work. Reminders stop once the invoice is marked paid, and replies reach a person who can act, so a disputed invoice leaves the routine straight away.

What is late payment interest?

Late payment interest, or statutory interest, is interest the law lets you charge when another business pays you late. It comes from the Late Payment of Commercial Debts (Interest) Act 1998. The rate is 8% a year plus the Bank of England base rate, charged as simple interest from the day after payment was due.

The Late Payment of Commercial Debts (Interest) Act 1998 only covers sales where you and your customer are both acting in the course of a business. It doesn't cover selling to consumers. The right is written into your business contracts automatically, so it applies even if your terms never mention interest.

Two exceptions matter. If your contract sets its own rate or remedy for late payment, you can't claim statutory interest as well, provided the contract's remedy is a substantial one. And a court can reduce or remove the interest if your own conduct makes that fair.

That rule comes from the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. You can look up past rates in the Bank of England's Bank Rate history. If you decide to add interest, GOV.UK says to send a new invoice for it.

How do you calculate late payment interest?

Multiply the unpaid amount by the yearly rate, which is 8% plus the relevant base rate, to get a year's interest. Divide by 365 for a daily figure, then multiply by the number of days late. That is all a late payment interest calculator does. Add the fixed debt recovery sum on top, once for each late payment.

The 4% base rate is an example to keep the sums simple, not today's rate. Use the real rate for your dates. I've rounded only at the end; GOV.UK's own example rounds the daily figure first, which can change the total by a few pence.

Can you charge a fee for chasing a late invoice?

Yes, if your customer is a business. On top of interest, the law gives you a fixed sum for the cost of recovering each late payment: £40, £70 or £100 depending on the size of the debt. You can charge it once for each payment. If your reasonable costs are higher, you can claim the difference too.

GOV.UK calls these debt recovery costs. If you plan to claim more than the fixed sum, keep a record of what recovering the debt cost you.

How do you set up Xero invoice reminders?

In Xero, open Sales, then Invoices, and select Invoice Reminders. Tick the box to email customers, and Xero switches on three default reminders for overdue invoices. You can edit them or add your own, up to five in total, each set a number of days before or after the due date.

A few details from Xero's help page on invoice reminders make a real difference:

• Each customer needs an email address in Xero, or the reminder can't go.
• Setting the days to 0 sends the reminder on the due date itself.
• Replies go to the login email of whoever first turned reminders on. Change it so they reach the person who handles payments.
• Xero won't send a reminder for an invoice recorded as paid, or when reminders are off for that customer or invoice.

QuickBooks Online works in a similar way. Go to Settings, then Account and settings, then the Sales tab, and turn on automatic invoice reminders in the Reminders section.

With QuickBooks, drop the heads-up or the day-21 reminder from my schedule to fit its three. Menus move, so follow QuickBooks' own help page if yours looks different.

What if they still don't pay?

Send a clear final letter before claim, with a date to pay and the interest and fixed sum you're adding. If that fails, consider mediation, the Small Business Commissioner if you're small and they're large, or a court claim. For a fixed sum under £100,000, you can claim online through Money Claim Online, but treat it as a last resort.

GOV.UK explains how to make a court claim for money. If the amount matters, or the customer disputes it, speak to a solicitor before you issue anything. My consultancy can build the routine, but it can't advise on your claim.

Is the law on late payment changing?

The government wants to change it, but the current rules still apply. In May 2026 it introduced the Commercial Payments Bill, which proposes maximum payment terms of 60 days, mandatory interest at 8% above base rate and stronger powers for the Small Business Commissioner. It won't apply retrospectively, and businesses will get a lead-in period.

The bill was still going through Parliament when I checked on 30 September 2026. The government's overview of the Commercial Payments Bill sets out the plans. Check GOV.UK's late payment guidance before you rely on the dates in any template.

Common pitfalls

• Chasing the wrong person. Send reminders to whoever pays the bills, not only whoever placed the order.
• Chasing a paid invoice. Record payments promptly, or the automation will chase someone who has already paid.
• Automating a dispute. Pause reminders for any invoice the customer has queried, and deal with it personally.
• Threatening interest you can't charge. Statutory interest is for business customers, and not where your contract sets its own remedy.
• Taking on a slow payer blind. GOV.UK lets you check when large businesses pay their suppliers before you agree terms.

What to do next

1. Check your terms. Make sure every quote and invoice has a clear due date, and that your terms mention statutory interest.
2. Switch on reminders. Set up Xero or QuickBooks reminders using the schedule above, then send a test to yourself.
3. Decide who phones. Name the person who makes the day-14 call and who owns replies.
4. Keep the formula handy. Use the worked example as a template, so a firm letter always has the right figures.
5. Know your last resort. Bookmark the GOV.UK court claim guidance, and speak to a solicitor before issuing anything significant.

How I can help

A chasing routine is the kind of job I set up as part of business automation for small businesses. I'll connect your accounts software, write the reminders in your own voice, and make sure replies and disputes land with a person.

If you'd like to find the other jobs worth handing to software, my guide to small business automation shows how to pick what to automate first. Accountants and bookkeepers may also like my guide to AI for accountants.

Questions people ask

Can I charge late payment interest to a consumer?

No. The Late Payment of Commercial Debts (Interest) Act 1998 only applies where both sides are acting in the course of a business. Selling to the public follows different rules, so take advice before adding interest to a consumer's bill.

Do I need to warn a customer before adding statutory interest?

The Act writes the right to statutory interest into business contracts, so it applies even if your terms don't mention it. It's still sensible to say in your terms and firmer reminders that you may charge it. If you do add it, GOV.UK says to send a new invoice.

Do Xero automatic invoice reminders stop when the invoice is paid?

Xero's help page lists an invoice recorded as paid as one reason a reminder won't be sent. So the reminders stop once the payment is recorded in Xero. That's why recording payments promptly matters.

Is there a time limit on chasing an old invoice?

In England and Wales, the usual time limit for a court claim on a contract is six years, under section 5 of the Limitation Act 1980. Don't wait anywhere near that long. Chase while the work, the paperwork and the contacts are fresh.

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