In short
To recover an unpaid invoice, check whether it is disputed, add statutory interest and fixed compensation, and send a formal letter before action. If that fails, choose a route: small claims court, a collection agency, solicitors, or a private binding decision such as Dispute Neutral, which both sides must agree to.
Key facts
- Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 is 11.75% a year for debts falling due in 2026.
- Fixed compensation per invoice: £40 under £1,000, £70 for £1,000 to £9,999.99, £100 for £10,000 or more.
- Small claims (up to £10,000 in England and Wales) took a median 41.0 weeks to reach trial, April to June 2026.
- A dispute does not remove the right to statutory interest; if the debt is owed, it runs from the original due date.
- Dispute Neutral decides within 10 business days of both sides' documents being in; fees start at £650 plus VAT.
You did the work. You delivered. You invoiced. And then — nothing.
Unpaid invoices are one of the most common and damaging problems facing UK businesses. The money was earned. It was expected. In many cases it has already been committed to wages, suppliers, or overheads. And yet it is sitting unpaid in someone else's account while you chase, wait, and chase again.
This guide covers every practical option for recovering an unpaid invoice in the UK — from the first letter to a binding resolution — in plain English, without jargon.
How serious is the unpaid invoice problem in the UK?
According to Department for Business and Trade research (2025), around £26 billion is owed to UK businesses in late payments at any given time. Over 1.5 million businesses are affected each year, and the average affected business is owed about £17,000. The same research links late payment to about 14,000 business closures a year, or 38 a day.
The same research found that the average affected business spends 86 hours a year chasing late payments. That is more than two full working weeks, consumed not by growth or client work but by recovering money that is already owed. You are not alone in this situation. And there are practical routes out of it.
Step one: Understand whether the invoice is overdue or disputed
Before choosing a recovery route, it is important to understand what you are actually dealing with. There are two fundamentally different situations:
The invoice is simply unpaid. The other side has not disputed it — they have just not paid. This may be deliberate, a cash flow problem, or administrative failure on their part. The recovery route here is relatively straightforward.
The invoice is disputed. The other side is actively contesting the invoice — the work done, the amount charged, the contract terms, or whether the payment obligation has been triggered at all. This is a different situation and needs a different approach.
The distinction matters for two reasons. First, the right recovery route is different in each case. Second, a disputed invoice needs a process that can resolve the disagreement, not just chase payment. A dispute does not remove your right to statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998. If the debt turns out to be owed, they still run from the original due date: a dispute delays payment, it does not remove the right. (A court can reduce interest where the supplier's own conduct justifies it, under section 5 of the Act.)
Step two: Know what you are entitled to claim
Many businesses focus only on the original invoice amount when chasing an overdue payment. Under UK law, you are entitled to more than that.
Under the Late Payment of Commercial Debts (Interest) Act 1998, you can add statutory interest to overdue commercial invoices at 8% above the Bank of England base rate. The rate is fixed for each debt: it uses the base rate in force on 31 December for debts falling due between 1 January and 30 June, and the base rate in force on 30 June for debts falling due between 1 July and 31 December. Base rate has been 3.75% since 18 December 2025, so the rate is 11.75% a year for debts falling due in 2026. Interest runs automatically from the date payment became late, with no court order needed.
Payment is late after the due date in the contract. If there is no agreed date, it is late 30 days after the later of delivery (or performance) and the customer receiving the invoice.
You can also claim fixed compensation per invoice:
| Debt size | Fixed compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
These amounts are added on top of the original invoice — per invoice, automatically, without a court order. Include them in your letter before action and any subsequent recovery process. For full detail on how to calculate and claim, see our statutory interest and compensation guide.
Step three: Send a formal letter before action
If chasing has produced no result, the next step is a formal letter before action — sometimes called an LBA or letter before claim.
This is not the same as a final demand. A final demand is a strong payment request. A letter before action is a formal legal step that puts the debtor on notice that you intend to take formal proceedings — through a neutral decision process or through the courts — if they do not pay within a specified period.
A letter before action should include:
- The invoice amount, plus statutory interest and fixed compensation
- The invoice reference and date payment became due
- A clear payment deadline: 14 days for a business. If the debtor is a sole trader or other individual, the Pre-Action Protocol for Debt Claims applies: allow 30 days and include the information sheet and reply form
- A specific statement of what you will do next if payment is not received
- Your payment details so there is no practical barrier to immediate payment
- An invitation for the debtor to set out any dispute in writing within the same deadline
Courts in England and Wales expect to see a letter before action before a claim is issued. Sending one properly — and keeping evidence of delivery — puts you in the strongest possible position for whatever comes next. See our full letter before action guide for exactly what to include and how to send it.
Step four: Choose the right recovery route
Private neutral decision process
For overdue invoice recovery where the invoice is disputed — or where you want a faster, more private, and more proportionate route than court — a private neutral decision process is worth serious consideration.
Both parties agree to appoint an independent neutral: an independent lawyer with at least 15 years' practical experience, acting as an expert, not an arbitrator. The neutral reviews the contract, the documents, and the written submissions from both sides. There is no hearing. Neither party needs a solicitor. A binding decision is issued within 10 business days of the matter being ready (when both sides' documents are in).
At Dispute Neutral, fees are fixed and banded by claim value: £650 (claims up to £4,000), £900 (£4,001 to £10,000), £1,200 (£10,001 to £25,000) or £1,500 (£25,001 to £150,000), plus VAT, or £1,500 plus VAT for a non-money decision on a commercial matter. Each side's written case can run to 15, 25, 30 or 50 pages for those bands (50 pages for a non-money decision). The process is private. It covers disputes between businesses (companies, partnerships and sole traders acting in the course of business) up to £150,000 in England and Wales and Northern Ireland. It does not currently accept disputes involving consumers.
This is particularly well suited to disputed invoices, debts above £10,000, situations where speed or privacy matters, and — importantly — the party on the receiving end of a claim who wants to avoid solicitor costs and open-ended legal bills. Within the Dispute Neutral process there is no court costs order; the fee is split as the parties agree.
For more on the comparison with court, see our court costs versus Dispute Neutral comparison.
Small claims court
For undisputed invoices up to £10,000 where the other side will not engage with any other process, the small claims track is accessible without legal representation.
The limitations are significant: small claims took a median of 41.0 weeks from claim to trial (HMCTS civil justice statistics, April to June 2026), there are upfront court fees, and enforcement is a separate step. Since 22 May 2024, defended small claims for a specified sum are automatically referred to free HMCTS mediation. The £10,000 limit applies in England and Wales; Northern Ireland has its own small claims limit of £5,000. Above that, claims go to the fast track (up to £25,000), the intermediate track (£25,000 to £100,000, since 1 October 2023) or the multi-track. Fixed recoverable costs apply on the fast and intermediate tracks, which limits the legal costs the winner can recover from the loser. See our alternative to small claims court guide for the full comparison.
Debt collection agency
For straightforward undisputed invoices where the debtor simply needs persistent pressure, a debt collection agency may be effective — working on commission of typically 10% to 25%. They have no power to resolve a genuine dispute, and their commission reduces your net recovery.
Solicitor-led litigation
For most invoices up to £150,000, debt recovery without solicitors is more proportionate. Legal costs represent a significant proportion of the amount being recovered, a large part of those costs are irrecoverable even if you win, and fast, intermediate and multi-track claims took a median of 55.9 weeks to reach trial in April to June 2026 (HMCTS).
What if the other side won't agree to a neutral process?
Both parties need to agree to use a private neutral decision process. If the other side refuses, court remains an option. However, three points are worth noting.
First, many businesses that resist court proceedings will engage with a private, fixed-fee process when the alternative is a public claim with its own costs risks. Second, courts in England and Wales can order parties to engage in ADR and must consider any unreasonable failure to engage when deciding costs. The Court of Appeal confirmed the power to order ADR in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416, and the Civil Procedure Rules changes took effect on 1 October 2024. A genuine attempt to resolve a dispute without a full court process is likely to be looked on favourably on costs, but whether a particular refusal is unreasonable depends on the facts. These rules apply in England and Wales only. Third, businesses that include a Dispute Neutral clause in their standard business terms ensure the process is already agreed before any dispute arises — draft clauses are available in the Include us section.
A practical timeline for unpaid invoice recovery
- Week one: Send a formal letter before action. Include statutory interest and fixed compensation. Set a 14-day deadline (30 days if the debtor is a sole trader or other individual). Keep evidence of delivery.
- Week two to three: If no payment and no response, decide on your next step based on whether the invoice is disputed or simply unpaid — and on the amount involved.
- Week three onwards: If proceeding with a neutral decision process, both parties submit documents and written cases. A binding decision follows within 10 business days of the matter being ready, against a median of 41.0 weeks for a small claim to reach trial.
Frequently asked questions
How long does unpaid invoice recovery take?
A letter before action sometimes produces payment within days. If both sides agree to use it, a private neutral decision process produces a binding outcome within 10 business days of the matter being ready. In April to June 2026, small claims took a median of 41.0 weeks from claim to trial, and fast, intermediate and multi-track claims 55.9 weeks (HMCTS civil justice statistics, April to June 2026).
Can I recover an unpaid invoice without going to court?
Yes — and for most commercial debts up to £150,000 you should seriously consider whether court is the right route at all. See our full guide on recovering unpaid invoices without going to court.
What if the debtor disputes the invoice?
A disputed invoice needs a process that can actually resolve the disagreement — not just chase payment. A private neutral decision process is specifically designed for this situation. A dispute does not remove your right to statutory interest and fixed compensation: if the debt turns out to be owed, they still run from the original due date.
Do I need a solicitor to recover an unpaid invoice?
Not necessarily. See our guide on debt recovery without solicitors for the full detail.
What is the difference between a final demand and a letter before action?
A final demand is a payment request — the last in a series of chasing letters. A letter before action is a formal legal step that puts the debtor on notice that formal proceedings will follow. Courts expect to see one before a claim is issued.
Can I claim interest on an overdue invoice?
Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can claim statutory interest at 8% above the Bank of England base rate (11.75% a year for debts falling due in 2026), automatically and without a court order, plus fixed compensation of £40, £70, or £100 depending on the debt size.
Ready to recover your unpaid invoice?
If you have an overdue invoice and the other side will agree to a private decision, Dispute Neutral offers a faster, more proportionate route to a binding outcome, without court and without solicitors.
Start a matter →Both parties agree • Private • Banded fixed fees • Binding decision within 10 business days of the matter being ready