Late Payments in Construction: Your Rights and What to Do

Late payments are one of the biggest threats to construction subcontractors in the UK. When a main contractor delays payment by weeks or months, the impact cascades through the supply chain, putting pressure on wages, materials, and your ability to take on new work.

The good news is that UK law gives you strong protections. The Construction Act 1996, the Late Payment of Commercial Debts Act 1998, and amendments introduced in 2011 give subcontractors clear rights to charge interest, claim compensation, and even suspend work when payments are overdue.

This guide explains your legal rights when a payment is late, the practical steps to recover what you're owed, and how to stop late payments becoming a recurring problem.

Why Late Payments Are So Common in Construction

Late payments in construction are more common than in almost any other UK industry. The government's Payment Practices Reporting duty, introduced under the Small Business, Enterprise and Employment Act 2015, requires large companies to publish how quickly they pay invoices. The data, published on GOV.UK, consistently shows that construction firms take longer to pay than companies in most other sectors.

The reasons are structural. Long payment chains mean money passes through several layers: from the client to the main contractor, then to subcontractors, then to sub-subcontractors and suppliers. Each layer introduces delay. When the client pays the main contractor late, the delay cascades downward, and subcontractors at the bottom of the chain feel it most.

For a small subcontractor running two or three projects, a single late payment can create a serious cash flow gap. You still need to pay your workers, buy materials for the next phase, and cover overheads. When the money you're owed doesn't arrive on time, you're effectively funding someone else's project with your own cash. Over time, this pattern erodes margins and puts your business at risk. For more on how to plan for these gaps, see our guide to cash flow forecasting for construction subcontractors.

Your Rights Under the Construction Act 1996

The Housing Grants, Construction and Regeneration Act 1996 (commonly called the Construction Act) sets out how payments must work in construction. If your agreement is a "construction contract" as defined by the Act, you have several important protections.

Payment notices and due dates. The paying party must issue a payment notice within 5 days of the due date, stating the amount they will pay and how it was calculated. If they want to pay less than the notified sum, they must issue a pay less notice before the prescribed deadline. If they miss these deadlines, the full amount you applied for becomes due.

Right to suspend work. Under section 112 of the Construction Act (as amended in 2011), you can suspend your obligations if payment isn't received by the final date. You must give at least 7 days' written notice stating your intention to suspend. You can also claim a reasonable amount for costs caused by the suspension, and the suspension period is disregarded when calculating any contractual time limits.

Adjudication. If a payment dispute can't be resolved directly, you have the right to refer it to adjudication at any time. An adjudicator must reach a decision within 28 days (extendable by 14 days with your consent). The decision is temporarily binding until the dispute is finally resolved by arbitration or court proceedings.

For a deeper look at how payment timescales work under JCT, NEC, and default terms, see our guide to Construction Act payment terms.

Statutory Interest on Late Construction Payments

Beyond the Construction Act, the Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to charge statutory interest on any commercial debt that is paid late. This right applies automatically. You don't need to include a clause in your contract, and the other party doesn't need to agree.

The interest rate is 8% above the Bank of England base rate. For example, if the base rate is 4.5%, you can charge 12.5% per year on the overdue amount. Interest accrues daily from the day after the payment was due until the day it's paid.

You're also entitled to fixed compensation for the cost of recovering the debt:

• £40 for debts under £1,000
• £70 for debts between £1,000 and £9,999.99
• £100 for debts of £10,000 or more

Worked example. Say you submitted an application for payment of £45,000. The final date for payment was 1 March, but you didn't receive the money until 15 April, 45 days late. With a base rate of 4.5%, your statutory interest rate is 12.5%. The daily interest is £45,000 × 12.5% / 365 = £15.41 per day. Over 45 days, that's £693.49 in interest, plus £100 fixed compensation, giving you a total claim of £793.49.

Use our free Statutory Interest Calculator to work out exactly what you're owed on any overdue invoice. It covers interest, compensation, and generates a PDF you can attach to a demand letter.

5 Practical Steps When a Payment Is Late

Knowing your rights is one thing. Acting on them effectively is another. Here are five steps to follow when a construction payment doesn't arrive on time.

1. Check your contract terms first. Before doing anything, confirm the due date and final date for payment in your contract. Different forms (JCT, NEC, bespoke) have different payment timescales. Make sure the payment is actually late before raising it. A payment that feels late may still be within the contractual period.

2. Send a polite but firm chaser immediately. Don't wait weeks hoping the money will arrive. The day after the final date for payment passes, send a written reminder by email. Reference the application number, the amount due, and the date it was due. Keep the tone professional but clear.

3. Send a formal late payment letter. If the chaser doesn't work within 7 days, escalate to a formal letter. State the amount owed, the date it was due, the interest accruing under the Late Payment of Commercial Debts Act 1998, and the fixed compensation you're claiming. Include a deadline for payment, usually 7 to 14 days. This letter often prompts action because it signals you know your rights.

4. Keep records of everything. Save every email, every application for payment, every payment notice, and every response. If the dispute escalates to adjudication, your paper trail is your evidence. Disorganised records make it much harder to recover what you're owed and can undermine an otherwise strong claim.

5. Know when to escalate. If direct communication fails, you have several options. Adjudication is the fastest route for most construction payment disputes, with a decision due within 28 days. Mediation is voluntary and requires both parties to agree, but can preserve the working relationship. Court proceedings are slower but produce an enforceable judgment. For most subcontractors, adjudication is the best first step.

How BuildQS Helps You Stay on Top of Payments

Late payments often start with disorganised processes. When applications are submitted via email attachments and tracked in spreadsheets with no clear audit trail, it's easy for things to slip through the cracks on both sides.

BuildQS gives you a structured workflow for every application for payment:

• Track application status from draft through submitted, approved, and paid, so you always know where every application stands
• Due date tracking based on your contract terms, so you know immediately when a payment is approaching or overdue
• Full audit trail of every submission, certification, and payment, giving you the evidence you need if a dispute arises
• Built-in statutory interest calculator so you can immediately work out the interest and compensation owed on any overdue payment
• Export to Xero with one click, keeping your accounting in sync without manual double-entry

When your payment process is clear and consistent, it's harder for payments to fall through the cracks, and much easier to follow up when they do.

Frequently Asked Questions

How long does a client have to pay a construction invoice?

It depends on your contract. Under the Construction Act's default terms (the Scheme for Construction Contracts), the final date for payment is 17 days after the due date, and the due date is 7 days after the end of the relevant period. JCT and NEC contracts have their own timescales, often 14 to 21 days from the due date. Check your specific contract or see our guide to Construction Act payment terms for the specific deadlines under each contract form.

Can I charge interest on late construction payments?

Yes. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the automatic right to charge interest at 8% above the Bank of England base rate on any commercial debt paid late. You don't need to include this in your contract. It applies by law. You can also claim fixed compensation of £40, £70, or £100 depending on the debt size. Use our free Statutory Interest Calculator to work out the exact amount.

What is the difference between a payment notice and a pay less notice?

A payment notice states how much the paying party intends to pay and must be issued within 5 days of the due date. A pay less notice is issued when the payer wants to pay less than the notified sum, and must be served before a prescribed deadline. If neither notice is served on time, the full amount applied for becomes the notified sum and must be paid in full. See our explanation of the notified sum for more detail.

Can I suspend work for non-payment?

Yes, under section 112 of the Construction Act 1996 (as amended in 2011). You must give at least 7 days' written notice of your intention to suspend. Once you suspend, you can claim a reasonable amount for costs caused by the suspension. The suspension period is also disregarded when calculating any contractual time limits, so you won't be penalised for delays caused by non-payment.

Sources

• Housing Grants, Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009. legislation.gov.uk
• Late Payment of Commercial Debts (Interest) Act 1998. legislation.gov.uk
• The Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649), as amended. legislation.gov.uk
• Small Business, Enterprise and Employment Act 2015, Part 1, Chapter 3: Payment Practices Reporting. legislation.gov.uk
• Bank of England Base Rate history. bankofengland.co.uk