Invoice Payment Best Practice for UK Businesses

What a valid invoice must include

An invoice is a formal request for payment, and it is not the same thing as a receipt, which simply acknowledges that payment has been made. GOV.UK is clear that you must give a customer a VAT invoice by law if both you and the customer are registered for VAT. Even where a VAT invoice is not legally required, a complete and correct invoice is the foundation of getting paid promptly, because a missing detail gives a customer an easy reason to delay.

GOV.UK sets out the specific fields every invoice must carry. A standard invoice must include a unique identification number, your company name, address and contact information, the company name and address of the customer you are invoicing, a clear description of what you are charging for, the date the goods or service were provided (the supply date), the date of the invoice, the amount or amounts being charged, the VAT amount if applicable, and the total amount owed.

There are extra requirements depending on how you trade. If you are a sole trader, the invoice must also include your name and any business name being used, and an address where legal documents can be delivered if you are using a business name. If you trade through a limited company, you must include the full company name as it appears on the certificate of incorporation, and if you choose to name any directors on the invoice you must name all of them. Getting these details right the first time removes the most common excuse for non-payment.

Setting payment terms and deadlines

Payment terms are yours to set, and setting them deliberately is the single most useful thing you can do to speed up payment. GOV.UK confirms that you can set your own payment terms, such as discounts for early payment or a requirement to pay upfront. The terms only work if the customer sees and accepts them before the work begins, so put them in your quote, your contract and on the invoice itself.

If you do not agree a payment period in advance, a statutory default applies. GOV.UK states that where no terms are agreed, the customer must pay you within 30 days of getting your invoice, or of receiving the goods or service, whichever is later. Where you do agree a date, it must usually be within 30 days for public authorities or 60 days for business-to-business transactions. Longer periods are allowed only where they are fair to both sides.

Clear terms are only half the job. The other half is making it effortless to pay you, which means showing the amount due, the due date and your payment details prominently, and offering a payment method the customer can action immediately. Modern payment tools let you attach a pay-now link to the invoice so the customer never has to key in bank details or wait for a finance run. You can see how this works with Nasara Connect's pay tools.

Your right to charge interest on late commercial payments

When another business pays late, you are entitled to charge statutory interest. GOV.UK sets the rate at 8% plus the Bank of England base rate for business-to-business transactions. The Bank of England held its base rate at 3.75% at its June 2026 meeting, which puts statutory interest at 11.75% per year at the time of writing. Because the base rate moves, the exact rate should be checked against the current base rate whenever you raise a claim.

This entitlement comes from the Late Payment of Commercial Debts (Interest) Act 1998, and it is more powerful than many suppliers assume. The right to statutory interest runs automatically, so you do not need a specific clause in your contract and you do not have to give advance notice of your intention to claim before it starts to accrue. Statutory interest is calculated as simple interest on the overdue amount, not compound interest.

There are limits. GOV.UK states that you cannot claim statutory interest if the contract sets a different rate of interest, and you cannot use a lower interest rate where you have a contract with public authorities. In practice this means the statutory rate is a floor for commercial protection: a contract can provide an equivalent or better remedy, but it should not be used to strip suppliers of a substantial remedy for late payment.

Fixed compensation for recovery costs

On top of interest, you can claim a fixed sum towards the cost of recovering a late commercial debt. These amounts are set by late payment legislation, and GOV.UK confirms the bands: 40 pounds for a debt up to 999.99 pounds, 70 pounds for a debt of 1,000 pounds to 9,999.99 pounds, and 100 pounds for a debt of 10,000 pounds or more.

The compensation is charged per payment, so you can only claim it once for each overdue invoice, but it applies to each late payment separately. The amount depends solely on the size of the debt, not on how much time or effort recovery actually took, which keeps it simple to apply and hard to argue with. Where your reasonable recovery costs exceed the fixed sum, the Act allows you to claim the additional reasonable costs on top.

Used together, statutory interest and fixed compensation are a meaningful deterrent. A slow-paying customer who realises that every late invoice carries interest at more than 11% a year plus a fixed recovery charge has a clear financial incentive to pay on time. Stating on your invoice that you charge interest and compensation on overdue commercial debts under the Late Payment of Commercial Debts (Interest) Act 1998 signals that you will exercise your rights.

The Fair Payment Code and prompt payment culture

Beyond the legal minimum, there is a voluntary standard for good payment behaviour. The Fair Payment Code, administered by the Office of the Small Business Commissioner, replaces the older Prompt Payment Code and is designed to be more ambitious and robust. Signatories commit to being clear, fair and collaborative with their suppliers.

The Code uses a tiered award system that rewards genuinely fast payers. The Gold Award is for firms paying at least 95% of all invoices within 30 days. The Silver Award is for those paying at least 95% of all invoices within 60 days, including at least 95% of invoices to small businesses within 30 days. The Bronze Award is for those paying at least 95% of all invoices within 60 days.

For a small supplier, checking whether a prospective customer holds a Fair Payment Code award, or asking about their standard payment run, is a quick way to gauge payment risk before you commit. For a larger business, applying for an award is a credible way to demonstrate to suppliers and buyers that prompt payment is part of how you operate. Either way, the Code reinforces the wider point that reliable payment is a reputational asset, not just a compliance obligation.

Practical steps to get paid faster

The law gives you the tools, but day-to-day habits decide whether you actually get paid on time. Start with the basics that remove friction: invoice as soon as the work is done rather than at month end, number your invoices consistently, and make sure every legally required field is present so nothing bounces back. An invoice that is complete and correct on the first attempt is far more likely to clear a customer's approval process without delay.

Build a predictable follow-up rhythm rather than waiting until an invoice is badly overdue. A short reminder a few days before the due date is often enough to move an invoice up the queue, and a prompt, professional note the day after the deadline sets the tone that you track payment closely. Keep records of when each invoice was sent and received, because that timeline underpins any later claim for interest or compensation.

Reduce the reasons a customer has to hold on to your money. Offer instant electronic payment, agree terms in writing before you begin, and consider staged payments or deposits for larger jobs so you are never fully exposed. If you are formalising how you take payment as you set up or grow, our guidance on getting your payment setup right from the start walks through the practical choices. Where a debt does become seriously overdue, escalate calmly through your stated late payment charges and, if needed, a court claim for money as a last resort.

Conclusion

Invoice payment best practice is not complicated, but it does reward discipline. Send complete invoices that carry every field GOV.UK requires, agree clear payment terms before you start, and make it as easy as possible for customers to pay you the moment they receive the bill. Those three habits alone shorten the average time it takes to get paid and cut the number of invoices that drift into dispute.

When a business does pay late, remember that the law is on your side. Statutory interest of 8% above the Bank of England base rate runs automatically on overdue commercial debts, fixed compensation of between 40 and 100 pounds applies depending on the size of the debt, and the Fair Payment Code sets a clear standard for the payment culture you should expect from good customers. Exercise those rights consistently and you turn late payment from a recurring cash flow shock into a manageable, well-understood risk.

Frequently asked questions