Late payment law for builders: what actually works

The law is on your side. Slowly. Any client can pay late, so the legal tools for getting paid matter. This guide covers what those tools are, what each one honestly achieves, and why the firms with the healthiest cash flow use them as a backstop rather than a strategy.

What the Late Payment Act gives you

The Late Payment of Commercial Debts (Interest) Act 1998 lets you charge statutory interest of 8% above the Bank of England base rate on overdue commercial invoices, plus fixed compensation for each late invoice: £40 on debts under £1,000, £70 from £1,000 to £9,999.99, and £100 on debts of £10,000 or more. Where no payment terms were agreed, the Act sets a 30-day default. You do not need a clause in your contract; the Act writes the entitlement in for you.

This applies to business customers: main contractors, developers, landlords acting in the course of business, commercial clients. For them, a polite line on your invoice noting that overdue amounts accrue statutory interest and compensation under the Act changes the conversation, because your invoice quietly grows while it sits unpaid.

The homeowner gap

The Act does not apply to consumers, so an overdue invoice to a homeowner carries only whatever interest your contract provides. This catches a lot of building firms out, because for most of them homeowners are the bulk of the book. If your terms are silent, you cannot add interest to a domestic debt yourself; a court can award interest once you sue, but that is late in the day and at the court's discretion.

The fix costs nothing: put an interest clause for late payment in your quotes and contracts for domestic work, at a stated rate per annum. It will rarely be invoked. Its job is to exist, visibly, before the invoice is late. The stronger fix is to set up milestone payments for your next project, so the money for each stage is secured before you start rather than chased afterwards.

The letter before action

A letter before action is a formal written warning that you will start court proceedings by a stated date, and it gets a large share of stubborn invoices paid without going further, because it converts "he keeps texting about the invoice" into "this is now a legal process". It should state the amount, the invoices it relates to, the interest and compensation accrued, a deadline of at least 14 days, and what you will do next.

Where the customer is an individual, the Pre-Action Protocol for Debt Claims applies: your letter must include prescribed information and reply forms, and give 30 days to respond. Follow it properly, because courts expect it and penalise claimants who skipped it. Template letters are cheap or free, and a solicitor will send one on letterhead for a modest fixed fee, which adds weight out of proportion to the cost.

Small claims: the realities

Small claims court works, but slowly, and winning is not the same as being paid. Claims up to £10,000 in England and Wales go through the small claims track, designed for businesses to use without a solicitor. The fees are proportionate and mostly recoverable if you win. The catch is everything else. Ministry of Justice Civil Justice Statistics for April to June 2026 put the median time for a small claim to reach trial in the county court at 41 weeks, and a judgment is a piece of paper, not a bank transfer: if the customer still refuses to pay, enforcement, such as instructing bailiffs, is a further step with further fees. Against an insolvent customer, a judgment recovers nothing at all.

The honest summary: small claims is effective against a solvent customer who is simply refusing, and poor against one who cannot pay. Above £10,000 the claim moves to a different track where legal costs become a real risk on both sides, so take advice before issuing. For the day-to-day discipline that keeps invoices from ageing to this point in the first place, see our guide to chasing invoices as a builder.

The honest conclusion: secure the money before you start

Every remedy above shares one feature: it begins after you have done the work and not been paid. Interest, letters, claims and bailiffs are ways of pursuing money you have already spent on labour and materials, months after you spent it, and none of them reliably beats the calendar. The unpaid money does its damage in the meantime, and it is the mechanism behind most of the sector's cash flow trouble, which we cover in cash flow for small construction firms.

The stronger position is money secured before you start. On a funded milestone schedule, the client pays in each stage's value, which is held securely, before you begin that stage, so you can see the money exists and is locked, and it is released to you as soon as the stage is signed off (it can take up to a day to reach your bank). Neither side can touch it in between. Renopay works this way. Client funds are held by OPP, an FCA-authorised electronic money institution. There is nothing to chase, because there is no gap between the work being approved and the money moving.

Keep the Late Payment Act in your toolkit. Then build your terms so you never need it. Join Renopay at renopay.co.uk and start your next job with the money already in place.

Frequently asked questions

Can builders charge interest on late payments?

Yes. For business customers, the Late Payment of Commercial Debts (Interest) Act 1998 gives you 8% above base rate plus fixed compensation of £40 to £100 per invoice automatically. For homeowners, you can only charge interest if your contract includes an interest clause, so add one to your domestic terms.

How do I send a letter before action for an unpaid invoice?

Set out the amount owed, the invoices concerned, interest and compensation accrued, and a clear deadline before you issue proceedings. If the debtor is an individual, follow the Pre-Action Protocol for Debt Claims, which requires prescribed information, reply forms and 30 days to respond.

Is it worth taking a client to small claims court?

For a clear debt under £10,000 owed by a solvent client, often yes: fees are proportionate and you do not need a solicitor. Factor in the wait, which Ministry of Justice figures for April to June 2026 put at a median of 41 weeks to trial, and remember a judgment still has to be enforced if they do not pay.

This article is general information about late payment remedies in the UK, not legal advice. For advice on a specific situation, speak to a solicitor. Renopay is a technology platform. Payment services are provided by Online Payment Platform Limited (OPP), an Authorised Electronic Money Institution regulated by the Financial Conduct Authority (FCA), Firm Reference Number 1003976. Client funds are held by OPP.