Payment Terms That Hold: A 30-60-90 Framework for UK SMEs

The invoice is not the contract

Payment terms are often buried in an invoice or agreed in an email after the work has started. That is the wrong order. The enforceable terms should be in the contract, or in the terms incorporated by the contract, before goods or services are supplied. An invoice can remind a customer of the terms; it cannot reliably create them.

For business-to-business debts, the Late Payment of Commercial Debts (Interest) Act 1998 provides a statutory backdrop. It allows statutory interest at 8% above the Bank of England base rate, fixed compensation of £40, £70 or £100 depending on the size of the debt, and reasonable recovery costs. A contract can set a different rate, but it must provide a substantial remedy; a token rate may not displace the statutory scheme. This is general guidance, not legal advice, and terms should be reviewed for fairness and enforceability.

Set the terms before the first invoice

A workable set of terms should answer five questions: when is payment due; what happens if it is late; what can the supplier do if the customer does not pay; how are disputes handled; and what law applies? For most SMEs, a 30-day term from invoice date is common, but the term should match the commercial reality. Longer terms may be appropriate for larger customers, provided they are priced or otherwise justified.

Useful clauses include:

• A clear due date, expressed as a number of days from the invoice date or from receipt of a valid invoice.
• Interest on overdue sums at a stated rate, plus statutory compensation and reasonable costs.
• A right to suspend work or withhold further deliveries while invoices remain unpaid.
• A retention-of-title clause where goods are supplied, subject to the limits of the law.
• A dispute procedure that requires written notice within a set period.
• A clause confirming that time for payment is of the essence.

Template wording, to be adapted by a solicitor, might read:

Payment is due within 30 days of the date of a valid invoice. Interest on any overdue sum shall accrue at 8% per annum above the Bank of England base rate from time to time, calculated daily, together with statutory compensation and reasonable recovery costs. The supplier may suspend performance and further deliveries where an undisputed invoice remains unpaid after the due date.

The key is consistency. If the sales team agrees 60 days on one deal and 14 days on another, credit control becomes a guessing game. A standard set of terms, with limited and documented exceptions, is easier to enforce and easier to explain.

Credit-check before you extend credit

Payment terms are a form of credit. Before granting them, check the customer. Companies House filings, credit reference reports, trade references and bank references all have a role. For smaller customers, a director’s guarantee may be appropriate, but it should be taken with advice and documented properly. Set a credit limit and review it when order volumes rise.

Data protection matters here. Credit checks should be carried out under a lawful basis, and the customer should know what information is being used. A short credit application form can capture the legal entity name, company number, registered address, billing contact, purchase order requirements and any agreed terms. That form is also evidence if a dispute later arises.

The 30-60-90 escalation timeline

Credit control works best when it is routine rather than personal. The following timeline is a practical starting point for an undisputed B2B debt:

The timeline should be adapted to the value of the debt and the customer relationship. A £500 invoice may not justify a solicitor at day 60; a £50,000 invoice may justify earlier action. What matters is that the process is consistent, documented and not left to whoever happens to be free.

Escalate without wrecking the relationship

Late payment is often a symptom of a customer’s cash-flow problem, not a personal slight. A calm, factual approach preserves the relationship better than a series of increasingly frustrated emails. Keep the account manager informed, but separate the commercial conversation from the credit-control conversation. Confirm payment promises in writing. If a payment plan is agreed, make it specific: amount, date, method and consequences of default.

Before suspending work or withholding goods, check the contract. A right to suspend should be exercised in accordance with its terms, and the supplier should avoid disrupting critical services without notice. Where the debt is disputed, isolate the disputed element and pursue the undisputed balance. A thorough paper trail — purchase order, delivery note, signed acceptance, invoice, reminder — is more persuasive than a strongly worded letter.

Practical disciplines for the year ahead

Review aged debt weekly, not quarterly. Send invoices promptly and accurately. Make sure the customer’s purchase order number is on every invoice. Keep credit limits under review. Agree terms at the outset and put them in the contract. And do not wait for day 90 to pick up the telephone. Most late payments are resolved by a timely, well-documented conversation long before a claim is issued.

Payment terms are not merely a credit-control tool. They are part of the commercial bargain. Set them clearly, apply them consistently, and escalate according to a plan. That is how an SME collects what it is owed without turning every overdue invoice into a battle.