How to Recover Unpaid Invoices for Small Businesses

This guide focuses mainly on commercial invoices owed to a business. Different legal and regulatory requirements can apply where the customer is an individual acting as a consumer, so check the rules that apply to the particular debt.

An unpaid invoice can quickly affect more than the balance in your sales ledger. Money you expected to use for wages, suppliers, tax or other costs remains outstanding, while someone in the business has to spend time chasing it.

If you are wondering how to recover unpaid invoices, start with a defined escalation process. Confirm that the invoice is correct and overdue, contact the customer promptly, record what is agreed and set a clear next action. If payment still does not arrive, you can move through firmer reminders, formal recovery options and, where appropriate, legal action.

Step 1: Check That the Invoice Is Actually Overdue

Before chasing payment, check the invoice, contract and agreed payment terms.

Confirm that:

• the correct person or company was invoiced

• the invoice went to the right contact or accounts department

• any required purchase order number is included

• the goods or services match what was agreed

• the amount and VAT treatment are correct

• the payment deadline has passed

• your bank or payment details are accurate

For qualifying business-to-business transactions, your agreed payment terms should be the starting point. If no payment date was agreed, GOV.UK guidance on late commercial payments states that payment generally becomes legally late 30 days after the customer receives the invoice or the goods or services are supplied, whichever is later.

Resolving an incorrect contact, missing purchase order, or invoice query first can prevent you from chasing a payment that the customer's accounts team cannot yet process.

Accurate records also make this check easier. Our small business bookkeeping services cover the recording of sales, purchases and payments, as well as tracking accounts receivable and payable.

Step 2: Send a Prompt Payment Reminder

Once you know the invoice is overdue, follow it up promptly.

A first reminder can remain polite and straightforward. Include:

• the invoice number

• the outstanding amount

• the original due date

• payment details

• a copy of the invoice

Ask when payment will be made rather than simply asking whether the invoice has been received.

If the customer gives you a payment date, record it. That date should become the trigger for your next action if the payment does not arrive.

Step 3: Speak to the Customer Directly

If the reminder receives no response, contact the person responsible for approving or arranging payment.

A conversation can identify issues that another email may not resolve. The customer may be waiting for internal approval, querying part of the invoice or experiencing financial difficulty.

Try to establish three things:

1. Do they accept that the invoice is due?

2. Is there a genuine dispute preventing payment?

3. What specific date will payment be made?

Confirm any agreement in writing afterwards.

Keep the invoice, reminder emails, call notes and promised payment dates together so there is a clear record if the debt later has to be escalated.

Step 4: Move From Reminders to Active Credit Control

If a promised payment date passes without payment, avoid sending another version of the same reminder.

The next communication should state:

• the balance still outstanding

• how long it has been overdue

• any previous payment date promised

• the new deadline for payment

• what the next step will be if that deadline is missed

A simple escalation process can look like this:

Give every overdue invoice a clear next action and a date for the next review. That is more useful than relying on occasional reminders when someone has time to send them.

Step 5: Understand Interest and Debt-Recovery Costs

For qualifying business-to-business debts, you may have statutory rights beyond recovering the original invoice value.

Statutory interest is 8% plus the applicable Bank of England reference rate. The reference rate is fixed for six-month periods, so it may differ from the Bank of England base rate in force when you later chase the invoice.

The Small Business Commissioner guidance on calculating interest and compensation explains how the applicable reference rate and payment terms affect the calculation.

You cannot claim statutory interest if the contract provides a different rate of interest.

For qualifying late commercial payments, fixed recovery compensation may also apply:

• £40 for debts up to £999.99

• £70 for debts from £1,000 to £9,999.99

• £100 for debts of £10,000 or more

Reasonable additional recovery costs may also be recoverable in certain circumstances.

Do not add these amounts automatically to every overdue account. Check that the transaction qualifies, review the contractual terms and consider whether the invoice is genuinely disputed before adding interest or recovery costs to the amount claimed.

Step 6: Consider Whether a Payment Plan Makes Sense

Sometimes a customer accepts that the debt is owed but cannot settle the full balance immediately.

At that point, consider whether staged repayments offer a realistic route to recovery or simply risk allowing the debt to remain outstanding for longer.

If you decide to accept instalments, record the arrangement in writing and specify:

• the total amount outstanding

• each instalment amount

• the payment dates

• how payment should be made

• what happens if an instalment is missed

A payment arrangement does not guarantee recovery. Its value is in giving both parties clear amounts and dates against which progress can be reviewed.

Step 7: Send a Final Demand and Check Pre-Action Requirements

If reminders, calls and agreed payment dates have failed, you may decide to send a formal final demand.

Set out:

• who owes the money

• the invoice or invoices involved

• the total outstanding balance

• when payment became due

• previous attempts to obtain payment

• the final payment deadline

• the action you intend to consider if the debt remains unpaid

Keep the wording factual and proportionate. Do not threaten recovery action you do not intend to pursue.

A final demand can mark the end of routine invoice chasing, but it is not necessarily the only step required before court proceedings.

In England and Wales, applicable pre-action requirements depend partly on the type of debtor and claim. For example, the Debt Claims Protocol applies when a business is claiming a debt from an individual, including a sole trader, while other disputes may fall under the wider pre-action conduct requirements.

If legal proceedings are being considered, check which requirements apply before issuing a claim.

Step 8: Decide Whether External Recovery Is Worthwhile

If your internal credit-control process has been exhausted, you may consider involving a debt-recovery agency or solicitor.

Review the commercial position before proceeding:

• How much is owed?

• How old is the debt?

• Is it disputed?

• What evidence supports the invoice?

• What professional or recovery fees could arise?

• Does the customer appear able to pay?

For a disputed debt, obtaining legal advice may be appropriate before deciding how to proceed.

For an undisputed debt, consider whether the potential recovery justifies the time, fees and further action involved.

Step 9: Treat Court Action as a Commercial and Legal Decision

Court action is a separate legal step, not simply the next stage of routine invoice chasing.

Before proceedings, consider the amount involved, the evidence supporting the debt, whether the customer disputes liability and whether recovery appears realistic.

Procedures also differ between England and Wales, Scotland and Northern Ireland, so do not assume that one court process applies throughout the UK.

Obtaining a judgment does not necessarily result in immediate payment either. Further enforcement steps may be required if the debtor does not comply with the court's order.

Consider obtaining independent legal advice before starting proceedings where the amount is substantial, the debt is disputed, or you are unsure which procedure or pre-action requirements apply.

After Payment, Review Why the Invoice Became Overdue

Once the invoice is paid, review the process that allowed it to remain overdue.

Ask:

• Was the invoice raised promptly?

• Were the payment terms clear?

• Was the due date being monitored?

• Were reminders sent consistently?

• Had the customer previously paid late?

• Was there a clear escalation point?

An aged debtor report can make this review easier by showing outstanding invoices and how long they have remained unpaid. Our management accounts service includes aged debtor and creditor reporting alongside wider financial information.

That visibility can make overdue balances easier to identify and review as part of regular financial monitoring.

Build a Consistent Credit-Control Process

Invoice chasing also has a measurable administrative cost. Department for Business and Trade research on late payments published in 2025 found that 22% of surveyed businesses used staff time to chase late payments. Among businesses affected by late payment, the average time spent was around 86 hours per year.

A credit-control routine should make it clear which invoices are overdue, who was last contacted and what happens next.

Our credit control service includes monitoring outstanding payments and following up overdue invoices as part of the credit-control process. Visit our credit control service page to see how we can support the ongoing management of your outstanding customer payments.

Last updated: September 2026.

This article provides general business information only and does not constitute legal or financial advice. Rights relating to late payments, interest, debt recovery and court procedures depend on the type of debt, the parties involved and the relevant UK jurisdiction. Consider obtaining professional legal advice where a debt is disputed, substantial or may require court proceedings..