Paying invoices is an essential step in any commercial relationship, whether it is a transaction between professionals or between a professional and an individual. Payment deadlines, settlement procedures and penalties for non-payment are crucial elements to understand in order to avoid misunderstandings and ensure that business runs smoothly. This guide explains everything you need to know to effectively manage your bill payments in the UK.
One of the most important aspects in any business relationship is to clearly establish the terms of payment. These conditions must be specified at the time of issuing the invoice and formalised in a contract or prior agreement between the parties. They define the payment method, the invoice amount, the payment term as well as the possible late payment penalties in case of non-payment on time.
Payment terms should include the following information:
- The invoice amount and details of the service or sale;
- The payment methods accepted (bank transfer, card payment, online payment, etc.);
- The payment term: the period granted to the customer to pay the invoice after receipt;
- Late payment penalties in case of non-compliance with payment deadlines;
- The reminder and recovery procedure in case of unpaid bills.
The terms of settlement should be detailed and unambiguous. For example, if you want a cash payment, specify it clearly. If you are accepting payments on a specific date, specify the due date clearly.
Finally, it is recommended to add the mention "invoice payable upon receipt" or "payment within 30 days" according to your agreement.
The payment term depends on the type of business relationship and the agreement reached between the parties. In the UK, the general rule is that unless otherwise agreed, payments between businesses should be made within 30 days of receiving the invoice or goods/services (whichever is later). This period may be specified in the contract or by agreement between the parties.
When you issue an invoice between professionals, the date of issue of the invoice and the date of receipt of the goods/services determine the starting point of the payment term. By default, the 30-day rule applies.
However, commercial contracts may agree on a longer period, although it's important to note that in the UK, excessively long payment terms may be considered unfair business practices. The Late Payment of Commercial Debts (Interest) Act 1998 provides a framework for addressing late payments.
In the case of a transaction with an individual consumer, the situation may differ. Payment terms between a business and a consumer are often shorter. In general, businesses may require immediate payment or payment on receipt to ensure prompt payment of the bill.
The specific conditions must be defined when drawing up the contract or on the invoice itself. Consumer rights legislation requires that payment terms be fair and clearly communicated.
The payment term for transactions between businesses is generally 30 days in the UK, but it can be extended according to the agreement of the parties.
If end of month payment terms are agreed, this means that payment must be made by the end of the month following the issue of the invoice. For example, if an invoice is issued on 10 February, the payment deadline would be 31 March.
It is important to clearly define this time frame in the contract to avoid ambiguity.
In some sectors, businesses negotiate specific payment terms. Companies can agree on 45-day end of month terms or payment on a specific due date, especially in the context of large-scale contracts. These deadlines must be clearly stated in the invoice or contract.
For individual consumers, payment terms may be more flexible, but they must still respect the law and the terms specified by the business. In principle, a consumer is often required to pay immediately or within a short period, depending on the agreed terms.
The standard 30-day timeframe that applies to B2B transactions doesn't generally apply in transactions between businesses and consumers, where immediate payment or payment upon receipt is more common. However, some businesses accept deferred payments or instalments according to the agreement made.
Payment options are diverse and can be adjusted according to the needs of the parties involved. Here are the most common types of payments.
This is a payment made at the time of receiving the invoice or the delivery of the product. It is often required in transactions with consumers or for one-off services.
Payment upon receipt means that payment must be made as soon as the invoice is received. This option is common in service contracts or in transactions between businesses.
Payment with standard delay is an option where the parties agree to respect legal deadlines, such as 30 days or end of month terms, without further negotiation. This type of payment is often used in standard business relationships.
Payment with a negotiated deadline allows the parties to define a longer payment term, according to the needs of each. This may be 45 days end of month, or other specific agreements. The negotiated deadline must always be clearly stated in the contract or on the invoice.
Non-payment of bills in a timely manner can have significant consequences for businesses and their customers. These sanctions may be contractual or legal.
In case of late payment or unpaid bills, late payment penalties can be applied. In the UK, statutory interest can be charged on late commercial payments at 8% plus the Bank of England base rate.
These penalties are legally authorised and should be clearly stated on the invoice.
If the bill remains unpaid after the due date, a formal notice can be sent to the customer to remind them of their obligation to pay. This recovery process is essential before initiating legal proceedings.
If the formal notice does not produce results, the business may initiate debt recovery proceedings. This procedure may include court fees and legal actions to get the bill paid.
Businesses can also use specialised debt collection services.
In the event of continued non-payment, legal actions may be taken, such as applying for a County Court Judgment (CCJ) or even initiating insolvency proceedings in extreme cases.
To avoid recurring situations of unpaid bills, it is important to implement effective debt management practices. This may include:
- Regularly updating customer contact details
- Sending electronic invoices with clear payment terms
- Monitoring payment deadlines closely
- Implementing a systematic reminder process
- Offering multiple payment options to make it easier for customers to pay
- Conducting credit checks on new business customers
- Considering payment in advance or deposits for large orders
By establishing clear payment terms and following a structured approach to managing payments, businesses can reduce the risk of late or unpaid invoices and maintain healthy cash flow.
