Customer Hasn’t Paid an Invoice? What to Do Next

Unpaid invoices can restrict your cash flow and leave your business in a tricky position. If a customer hasn’t paid an invoice, check if the invoice is correct, then contact them, resend it and agree a payment date. If it’s still unpaid, you can charge statutory interest and fixed compensation, send a final demand and, as a last resort, make a court claim. Invoice finance or a short-term loan can cover the gap while you wait.

Key Takeaways

If late payments are affecting you, there is an escalation process you can follow.

You are entitled to levy statutory late payment fees, or even file a court claim against clients who do not pay you.

If you’re tired of chasing payments and struggling with cash flow in the interim, invoice finance could be a viable option to ensure seamless business operations.

Late payments are, unfortunately, a common problem for small businesses in the UK. When a customer is late to pay an invoice, or fails to pay completely, it has a tangible effect on SMEs. In 2025, it was reported that 28% of all businesses are affected by late payments, with 14,000 businesses closing annually as a result, equivalent to 38 per day. On average, each business affected by late payments spends 86 hours chasing these payments throughout the year, which is a colossal 133 million hours of staff time ultimately wasted across the whole economy every single year.

Source: Small Business Commissioner

Recovering late payments is something that all business owners are likely to experience, so it’s useful to know what your options are, from the proactive self-help route in the first instance, right the way through to the last resort of litigation.

Unpaid invoices: What process should you follow?

The best approach to take in the first instance is to recover the funds yourself, as this usually leads to the best outcome for everyone. However, in the (hopefully very rare) event that your customer is unresponsive or refusing to pay, you may need to escalate things further.

Step 1: Review your invoice terms

When you’re busy running a business, particularly as a sole trader wearing many hats, it can be easy to make or miss a simple mistake. In the first instance, make sure to double check all of the details on the invoice such as bank account details, due dates and exactly what terms you have set out. It could be that a simple error is causing the delay, but if not you can continue to the next step in full confidence.

Step 2: Chase unpaid invoices

Approach the client or customer directly to resolve the issue. Be sure to resend the invoice to clear up any potential confusion and give your client a chance to rectify the situation before you take things further. While waiting for payment is incredibly frustrating, try to offer them the benefit of the doubt and keep your tone friendly and professional in any communication you have.

Step 3: Charge late payment interest

If your client still fails to pay after your gentle reminder, you may wish to start charging statutory interest on the amount owed, or levying any late-payment fees set out in your own payment terms. Statutory interest is 8% plus the Bank of England base rate for business to business transactions.

Source: GOV.UK

Step 4: Issue a final demand letter

If your invoice remains unpaid, a formal demand letter may be the logical next step. This letter should detail the outstanding amount, the deadline for payment and the potential consequences of non-payment, which may be litigation (legal action). Keep your wording firm but professional at all times and consult with a legal professional if you’re at all in doubt. This letter could go on to be used in support of any case you raise against the client, so it’s really important that all the facts and figures are accurate.

Step 5: Contact OSBC

If you feel like you’ve exercised all your options and want to avoid taking legal action against your customer, you can make an enquiry with the Office of the Small Business Commissioner (OSBC). The OSBC is an independent public body set up by the government in 2016 to help tackle late payments by investigating complaints made by SMEs about overdue and unfair payment practices by larger companies. Once a handler is assigned to your case, they aim to help resolve disputes within 40 days.

Source: OSBC

Step 6: Consider legal action

If nothing else has worked up to this point and your invoice is still unpaid, you may wish to take legal action. The final demand letter outlined in step 4 is essential to this process, but you’ll need to wait for a set period of 14 days for business customers, or 30 days for individual customers to pay up before you file your claim online or in court.

Source: Justice UK – Preaction Protocol for Debt Claims

Source: GOV.UK – Make a Court Claim for Money

How can I get my invoices paid without legal action?

Going to court over an unpaid invoice is a lengthy, time-consuming and often expensive process that should be avoided where possible. If you’ve exhausted all of the other options above but still want to avoid legal proceedings, you could choose to get access to your cash another way – via invoice finance.

What is invoice finance?

Invoice finance COVERS a range of invoice-based lending arrangements. In simple terms, you’ll ‘sell’ your invoices to a third party in exchange for a percentage of their value. The third-party (usually a trusted lender) will then either recoup the funds directly, or you retain this control yourself and pay the lender back once your customers pay. This type of business finance is designed to prevent the adverse effects that slow and late payments can have on your cash flow.

Invoice Finance Explained

Customer hasn’t paid an invoice: Your options

	Chase up the invoice yourself	Take legal action against your client	Use a lender for invoice finance	Overdraft or unsecured short-term loan
How long does it take?	Can take weeks or months to receive payment.	Depending on your claim, this can take anywhere from 3 to 12+ months to resolve.	Once accepted, you’ll have a percentage of the funds within 24 – 48 hours.	Usually very quick to set-up, depending on the amount you need to borrow.
How much does it cost?	No charges, but it costs you in the time you spend chasing up.	Court filing fees start at £35 and increase dramatically based on debt value. Other legal fees can accumulate into the thousands.	Fees differ between lenders and the exact product you choose. Check for set-up fees, service fees bad credit charges and discount charges.	Interest rates will apply, along with any potential set up fees.
Best suited for	If you have the time and resources available to chase the payment yourself.	If you have exhausted all other options – particularly if the client is not responding.	If you just want to access your cash as quickly as possible moving forwards.	Quick access to funds that you only need temporarily.

Source: GOV.UK – Civil Court Fees

Where White Oak UK fits

White Oak UK helps established UK SMEs where working capital is tight due to customer payment terms or growth. If late payment or extended payment terms are a regular feature, invoice finance can assist by releasing up to 90% of invoice value, so you’re not left waiting on customer payments. If one or two large invoices are late and you know when they’ll be paid, an unsecured working capital loan may suit you better. Neither is the answer if a customer can’t pay because they’re in financial trouble. Chase the debt and take advice first.

There are three different types of invoice finance available, which each have different factors to consider. These are:

Invoice Factoring

You ‘sell’ your invoices to a lender of your choice, getting upfront cash based on a percentage of their value.

Finance provider will take control of the debt collection process, meaning they will contact your customers to collect payments.

Helpful if you don’t have your own accounts department, or the resources to chase up payments yourself.

Invoice Discounting

You ‘sell’ your invoices to a lender of your choice, getting upfront cash based on a percentage of their value.

This time, you’ll retain control of the debt collection process, continuing to chase late payments yourself. It’s usually confidential, so your customers don’t need to know.

When your clients pay, you pay the lender back for the upfront cash.

This option is better suited to established businesses with time, staff and resources to chase up payments themselves.

Selective invoice finance

You ‘sell’ specific invoices and customer accounts to a lender of your choice, getting a slice of upfront cash based on the selected invoices/accounts value.

You choose who does the chasing, giving you the freedom to pick between the two.

Great for businesses who need a temporary cash injection but don’t want to commit to a widespread finance arrangement.

Apply for Invoice Finance

FAQs

Is it illegal to not pay an invoice?

In simple terms, no, it is not technically illegal to fail to pay an invoice. It is, however, a breach of contract, which gives rise to civil proceedings against the person failing to pay.

How long do you legally have to pay an invoice in the UK?

Invoice payment deadlines can be stipulated in contract terms or on the invoices themselves. Where no date is agreed, the law stipulates that the payment is late 30 days after whichever one of the following comes later:

The invoice is received

The goods / services are provided

What can I do if someone hasn’t paid an invoice?

In the event that someone hasn’t paid an invoice owed to you, you should first follow it up with them in a professional and friendly manner. If the invoice remains unpaid after your gentle reminders, you are within your rights to issue a Final Demand before lodging a court claim. If you want to avoid taking your client or customer to court, you can also use the services offered by the Office of the Small Business Commissioner to help you recover the funds.

What happens if a customer doesn’t pay an invoice?

When a customer doesn’t pay an invoice, nothing will automatically happen. You can escalate the matter by resending the invoice with a reminder, pointing out any late payment fees and potentially taking the client to court further down the line if you’re unable to reach a resolution.

Next steps: Getting your invoices paid

While the entire process of invoicing and chasing up is frustrating and time-consuming, there are steps you can take to go after your funds. Start by verifying that your invoice is accurate and that the payment terms are clear. Contact the customer promptly, resend the invoice and keep all communication polite, professional and documented. If payment is still overdue, consider applying statutory interest or issuing a final demand letter. The Office of the Small Business Commissioner may also help eligible small businesses resolve disputes without going to court.

Where recovery is taking too long or your business is in need of working capital, invoice finance can unlock cash tied up in unpaid invoices. Whether you want to retain control of your invoices and maintain confidentiality, or you’d like the reassurance of a lender chasing up payments on your behalf, White Oak UK can help you explore a funding solution suited to your business and customer relationships.

Apply for Invoice Finance – or talk to our team of experts on 0333 014 9000.