There has been a law on the books since 1998 that lets any business charge interest when another business pays it late. It’s called the Late Payment of Commercial Debts (Interest) Act, and it isn’t small print. The rate is 8 per cent above the Bank of England base rate — comfortably into double figures at today’s rates — and the same Act adds a fixed sum on top of every late invoice, £40, £70 or £100 depending on the size of the debt, for the bother of chasing it.
I have sat in a lot of construction offices. I have never seen anyone charge it.
Ask an MD why and you get the polite answer: relationships. You don’t send your biggest customer an interest invoice and expect to win the next tender. That’s true, and I won’t pretend software changes it. But underneath sits a plainer reason that almost nobody says out loud. You can’t charge interest on a late payment if you don’t know it’s late. And in most mid-market firms, nobody knows.
Why “late” is invisible in construction
In most industries that would be a strange claim. An invoice goes out, the terms say thirty days, the accounts package counts. Simple.
Construction doesn’t bill like that. On contract work you mostly don’t send invoices as you go — you send an application for payment: a document that says here’s the work we’ve done this month, and here’s what you owe us for it. The contract then sets the machinery around it — the date the payment falls due, and the final date by which the money must actually arrive. Those dates are real and they bind. They are also written in a contract PDF in a folder, not in your accounts system.
Sage or Xero usually meets the money late in the story — often only once the sum has been agreed and someone raises an invoice for it. So the one system in the business that can count days has no idea when the clock started and no idea when it runs out. “Overdue” stops being a number and becomes a feeling. The quantity surveyor knows that job is slow to pay. You know the cash feels tight. Nobody can print the list.
One nuance worth knowing: some contracts set their own late-payment interest instead of the 1998 Act’s rate — the standard construction forms generally do. The rate differs but the story doesn’t. It goes unclaimed either way, for the same reason.
Parliament is about to care about this more than you do
In May the government put a bill into Parliament called the Commercial Payments Bill. It’s working through the House of Lords now, and it is aimed squarely at how businesses pay each other. The headline measures: a 60-day cap on the payment terms large companies can impose on smaller suppliers; interest on late payment made mandatory, at that same 8 per cent above base, rather than a right the supplier may or may not dare to exercise; and a ban on retentions in construction contracts — the held-back slice of your money I’ve written about before.
It would also put real teeth on the Small Business Commissioner — a government office set up to deal with payment complaints from smaller businesses, which until now has run mostly on polite persuasion. Under the bill it could investigate persistent late payers, adjudicate payment disputes and fine the worst offenders.
The honest caveats: it is a bill, not yet a law. The detail can change in the Lords, and nothing in it bites today. But the direction isn’t subtle. The government’s own case says late payment closes 38 businesses a day and costs the economy £11bn a year, and evidence put to the Commons Business and Trade Committee — a committee of MPs that scrutinises this sort of thing — suggests 44 per cent of small firms’ invoices are paid late. Construction got singled out in that committee’s work as one of the worst corners.
Notice, too, that it cuts both ways. A mid-market contractor is the smaller supplier looking up at a main contractor or client — and the large customer looking down at its subbies. Once payment conduct is something a regulator can investigate and fine, the state of your bought ledger is evidence as well. How you pay is about to become as visible as how you’re paid.
Knowing your position is the whole game
The fix here is not a credit-control platform with a workflow engine. It’s a register that pays attention. One screen: every application and invoice you’ve issued, the due date and final date from its contract, how many days over it is, and what interest is quietly accruing under the Act or the contract terms. And the mirror of it: everything you owe, on the same clock. It reads from the accounts package you already run and holds the one thing that package can’t — the contractual dates.
The point is not to start billing every client interest on day one. The point is that you cannot chase, negotiate or even decide to let something go if you can’t see it. A conversation changes when you walk in with a number. “Any chance of that payment?” is a plea. “You’re holding £48,000 of ours, some of it four months past the final date, and the law puts another £1,900 on top” is a position — whether or not you ever collect the £1,900.
Where this doesn’t apply. If you’re ten people with a handful of customers and your bookkeeper can recite the debtor list from memory, you don’t need software — you need the nerve to make the phone call, and no tool supplies that. If your real problem is that chasing your one big customer might cost you the next job, that’s leverage, not visibility, and the bill’s complaint routes will do more for you than anything I could build. And if someone tries to sell you a “Commercial Payments Bill compliance module” this year, show them the door — the law isn’t finished, and they know it.
But if you’d struggle to say, today, what your firm is owed and how old each pound of it is — that’s a small, boring, fixable gap, and fixing it will pay for itself whatever the Lords do to the detail. Get in touch.