Invoice Payment Terms: Guide for UK Tradespeople

Payment terms define when your customer must pay your invoice and under what conditions. The terms you set directly affect your cash flow, so choosing the right ones for your trade and customer base is important. There is no legal requirement to offer credit terms at all, and many tradespeople working for domestic customers expect payment on completion.\n\nPayment on completion means the customer pays when the job is finished, either in cash, by bank transfer, or by card. This is the most common arrangement for small to medium residential jobs such as a boiler installation, an electrical repair, or a bathroom fit. It gives you the shortest possible payment cycle and minimises the risk of non-payment.\n\nNet 30, meaning payment due within 30 days of the invoice date, is standard when working for commercial customers or other businesses. It gives the customer time to process the invoice through their payment system. Some larger companies or councils may request net 60 or even net 90 terms, but these can severely impact your cash flow and should be negotiated down if possible.\n\nFor larger projects, staged payments or milestone billing is common. You agree with the customer that payment is due at defined stages of the work, such as 30 percent deposit, 30 percent at first fix, and 40 percent on completion. This protects both parties: the customer does not pay for unfinished work, and you do not fund the entire project from your own pocket.

Under the Late Payment of Commercial Debts (Interest) Act 1998, you have a statutory right to charge interest on late payments from business customers. This applies automatically to business-to-business transactions without needing to be written into your contract, though it is good practice to mention it on your invoices.\n\nThe statutory interest rate is 8 percent plus the Bank of England base rate, calculated per annum from the date payment became overdue. For a 2,000 pound invoice that is 60 days overdue with a base rate of 4.5 percent, the interest would be 12.5 percent per annum on 2,000 pounds for 60 days, which works out to approximately 41 pounds. While this may seem modest, it incentivises timely payment and compensates you for the cost of waiting.\n\nIn addition to interest, you can claim a fixed sum as compensation for the cost of debt recovery. For debts under 1,000 pounds, the fixed sum is 40 pounds. For debts between 1,000 and 9,999.99 pounds, it is 70 pounds. For debts of 10,000 pounds or more, it is 100 pounds. These amounts are per invoice, so multiple overdue invoices each attract their own compensation.\n\nFor domestic customers, the statutory late payment interest rules do not apply as they cover business-to-business transactions. However, you can include your own late payment terms in your contract or terms and conditions with residential customers. Any agreed late payment charge must be reasonable and clearly communicated before the work begins.

Cash flow is the lifeblood of any trade business, and your payment terms are your primary tool for managing it. Consider the following principles when setting your terms. First, shorter terms are almost always better for you. If you can achieve payment on completion for domestic work and net 14 or net 21 for commercial work, your cash flow will be significantly healthier than if you default to net 30 or longer.\n\nSecond, require deposits for any job over a certain value. A deposit of 25 to 50 percent before starting work is standard practice and ensures you are not funding materials and labour costs entirely from your own cash. Most customers expect to pay a deposit, and those who refuse may be a credit risk worth avoiding.\n\nThird, state your payment terms clearly on every quote and invoice. Ambiguity leads to delays. Rather than writing payment due promptly, specify a date or period such as payment due within 14 days of invoice date or payment due on completion of works. Include your bank details prominently so payment is as easy as possible.\n\nFourth, consider offering a small discount for early payment if cash flow is critical. A 2 percent discount for payment within 7 days costs you 2 percent of the invoice value but can dramatically accelerate payment. Conversely, avoid offering extended terms to win work unless the job is large enough to justify the cash flow impact. TradeTally lets you set default payment terms that automatically apply to every invoice.

Domestic customers, meaning homeowners and tenants, typically pay on completion for small jobs and in staged payments for larger projects. Most homeowners understand that tradespeople need to be paid promptly, and payment on the day is a reasonable expectation. For larger domestic projects, agree the payment schedule in writing before work starts.\n\nCommercial customers, including businesses, landlords, and property management companies, often have formal procurement processes with set payment cycles. Net 30 is standard but negotiable. If a commercial customer requests extended terms, counter-offer with shorter terms or request a deposit. Remember that you are not a bank, and financing their cash flow at the expense of yours is not sustainable.\n\nMain contractors on construction projects are governed by specific payment rules under the Construction Act. Payment notices must be issued within five days of the due date, and pay-less notices must be issued at least seven days before the final date for payment. These rules give subcontractors legal protections against late payment, and understanding them is important if you regularly work for main contractors.\n\nLocal authorities and government bodies often have lengthy payment processes. While the government's target is to pay invoices within 30 days, delays are common. If you work for councils or housing associations, factor these delays into your cash flow planning. You can still charge statutory late payment interest on overdue public sector invoices, and government departments are increasingly being held accountable for prompt payment.