Contractor late payment letters - free templates

Late payers will always exist

For the smallest of businesses, such as one-person contractor limited companies, it is not a nice thing to be told. It’s going to sound even worse to those new contractor businesses on the cusp of securing their very first order or contract. But this week, the chairman of the Federation of Small Businesses fessed up: “There are always going to be companies that pay late,” he said.

With less resignation, John Walker quickly added that “there are steps that businesses can put in place to make sure they don’t fall foul” of late, incomplete or non-payers.  

Seven days overdue

On both points, he’s correct of course. One of those so-called “steps” (see Part 1 in this series for a timeline of the suggested steps) is to send a ‘Reminder of Payment’ letter, or email, on the seventh day from when the payment should have been made (See Letter ‘A’, below).

Fourteen days overdue

As a contractor business unpaid at fourteen days after the due date, another letter – stronger in tone – should be sent by you to the client (See Letter ‘B’, below). This ‘Second Reminder of Payment’ document, or email, should explicitly but politely inform the client that they may incur additional charges owing to their original non-payment.

Still not paid?

Lastly, but potentially most importantly, contractors also need to have a ‘Final Demand’ letter to hand (Letter ‘C’). Stronger in tone than the two previous letters, this document features three sets of numbers near the top, so they are prominent in appearance. It’s your final stab, and the reader – the client’s accounts payable staff - should feel it.

UPDATE: New late payment legislation was introduced in the UK in March 2013 - “The Late Payment of Commercial Debts Regulations 2013”. For any B2B invoice raised after the 16th of March 2013 this legislation now applies and allows for the recovery of any extra collection costs incurred.

For invoices raised prior to the 16th of March 2013, the previous legislation still applies.

The Fear

For some contractors, these letters take courage to pen, let alone post. But as long as you’re polite and professional, don’t be afraid to pursue the payment for your services. If approached in a sensible fashion, having credit control procedures in place will only reinforce the idea that your business operates effectively in all areas. Moreover, as the FSB’s Mr Walker reminded his members, “In the current economic climate, every penny counts”. And as I like to urge contractors to tell themselves, “A sale is not a sale until the money is in the bank. I shall ensure that it arrives there.”

Suggested Late Payment Letters

· Letter ‘A’ – Reminder of Payment

Dear Sirs,

Outstanding Account Value - £ (Insert sum)

The above sum was due for payment on XX/XX/XX but as at today's date no payment has been received.

Should your company have any legitimate reason for non payment please contact us within the next seven days so we can fully investigate any issue.

Should no query exist please be aware our payment terms are strictly XX days and we make no provision for extended credit terms in our pricing structure.



Download Reminder of Payment Letter (A) [Word doc]

· Letter ‘B’ – Second Reminder of Payment 

Dear Sirs,

Outstanding Account Value - £ (Insert sum)

As at today's date, we have yet to receive payment of the outstanding amount, which is now considerably overdue. 

Our company has not yet levied any late payment or interest charges under “The Late Payment of Commercial debts (Interest) Act 1998 as supplemented and amended by the Commercial Debt Regulations 2002”.

However should payment in full not be received within the next seven days we may add these charges to your account. (Optional:Please also note that our company has a policy of ceasing supply of work/services to any organisation with an account more than XX days in arrears.)

We trust this will not be necessary and look forward to receiving payment by return.




Download Second Reminder of Payment Letter (B) [Word doc]


· Letter ‘C’- Final Demand

Dear Sirs,

Final Demand

Outstanding Account - £ (Insert sum)

Late Payment Costs - £ (Insert sum)

Late Payment Interest - £ (Insert sum)

Total Outstanding - £ (Insert sum)

Despite previous reminders we are disappointed to note that the above account remains outstanding.

As this amount is now in breach of our agreed payment terms we have reluctantly added further costs and interest in line with “The Late Payment of Commercial debts (Interest) Act 1998 as supplemented and amended by the Commercial Debt Regulations 2002”.

It is now imperative that this amount is settled in full, including late payment costs and interest charges within the next seventy two hours.  Failure to settle this now extremely overdue account in a timely manner will leave our organisation with little option but to pass this account to our chosen debt recovery agency, … (Insert name, e.g. Safe Collections)

We would therefore respectfully suggest that you treat this matter with the urgency it deserves and remit the full balance due as soon as possible.



Download Final Demand Letter (C) [Word doc] UPDATE: The downloadable template for Final Demand includes an additional paragraph to reflect March 2013 regulations.


Final considerations

The above letters are a basic starting point for contractors who are owed money for services they have supplied. Your limited company may have other procedures to deal with defaulting clients. If so, include these in your requests for payment. Common examples include the removal of access to specific work or domains, or the retention of copyright/intellectual property.

Meanwhile, advice and help calculating the statutory late payment costs and interest is available on the government’s Late Payment website. Alternatively for smart phone users, we have developed a free late payment calculator for both iPhone/iPad and Blackberry handset users. 

Guidance and letter templates by Sid Home, managing director of Safe Collections, a debt recovery and credit reporting agency that specialises in helping freelancers, contractors and other small businesses.

Thursday 7th July 2011