Payment terms look like admin, but for a small consultancy they decide how much of your own cash you spend funding the client. The gap between being paid 30 days after invoice and 90 days after invoice is two extra months of work you have done and not been paid for. This guide covers what to ask for, how to raise it, and what the law gives you if the client pays late.
Common payment structures
Payment within a set number of days of invoice. Often written as “30 days from the date of invoice”. Thirty days is a common starting point in UK consultancy. Larger companies and public bodies often propose 45, 60 or more.
Deposit and balance. Part of the fee upfront and the rest on completion. Useful on project work, particularly with a new client or where you have costs to cover at the start.
Milestone payments. Payment tied to stages of the work, for example a percentage on signing, on delivery of a draft and on final sign-off. This spreads the risk and means you are never too far ahead of the money.
Monthly retainer. A fixed monthly fee for an agreed amount of work, usually invoiced at the start or end of each month. Invoicing in advance is better for you and worth asking for.
What the law says about payment periods
The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts for goods or services where both sides are acting in the course of a business. If you haven’t agreed a payment date, payment is treated as late 30 days after the later of the customer receiving your invoice and you providing the services.
You can agree a longer period, but the late payment rules treat periods over 60 days between businesses with some suspicion. As a general rule, an agreed period of more than 60 days needs to be expressly agreed and not grossly unfair to the supplier, otherwise statutory interest can start to run from day 60. Public authorities are held to tighter limits. Government has consulted on further changes to payment terms for large businesses, so check the current position if a long payment period is a live issue.
What to negotiate
A shorter payment period. If the client proposes 90 days, ask for 30, or offer milestones as the price of accepting something longer. Something like: “Ninety days is difficult for a business our size. Could we do 30, or split the fee into stages?” Explaining the reason tends to work better than simply refusing.
A deposit for upfront costs. If the work involves travel, software licences or subcontractors you have to pay before the client pays you, ask for a deposit to cover them. Say you expect to spend £5,000 in the first month: asking for a deposit of that amount is a reasonable request most clients will understand.
Milestones on longer projects. Break the fee into stages that match the work, such as discovery, design and implementation, each payable on completion of that stage. Make sure each milestone is defined by something objective (delivery of a document, a meeting held) rather than the client being satisfied.
An early payment discount. Some consultants offer a small discount for payment within, say, 14 days. It costs you money, so only offer it if faster cash is worth that to you.
Retainers invoiced in advance. Invoice at the start of the month for that month’s work, with payment due shortly afterwards, so you are not always a month or more in arrears.
Late payment clauses to include
Interest on overdue sums. For business-to-business debts, the Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory interest at 8% a year above the Bank of England base rate (the reference rate is fixed for each six-month period). You also get a fixed sum for each overdue invoice: £40 for debts under £1,000, £70 for £1,000 to £9,999.99 and £100 for £10,000 or more. You can claim reasonable recovery costs on top of that if the fixed sum doesn’t cover them.
You don’t need a clause to rely on the Act, but mentioning it in your terms and on your invoices tells the client you know your rights. If the contract sets its own rate of late payment interest, that rate normally replaces statutory interest, but only if it is a substantial remedy. A token rate can be challenged, and the clause replaced with statutory interest. Look out for client drafts that set a very low rate or exclude interest altogether.
Suspension for non-payment. For example: “If any invoice is more than 14 days overdue, the consultant may suspend the services on written notice until payment is received.” Without an express right, stopping work can put you in breach yourself, so this clause matters.
Payment method and currency. State the currency and that payment is by bank transfer to the account on the invoice. It avoids small arguments later.
Expenses. Say which expenses are recoverable, whether they need approval in advance, and that they are payable on the same terms as your fees.
Payment clauses to push back on
“Payment within 30 days of acceptance.” This is not the same as 30 days from invoice. If the client takes 60 days to accept your work, you are paid on day 90. Ask for a deemed acceptance mechanism: the client has, say, ten working days after delivery to reject the work with reasons, and if it doesn’t, the work is treated as accepted.
“Payment is subject to the client’s approval of the deliverables.” This makes payment depend on the client’s satisfaction, which is subjective. Tie payment to a schedule and deal with changes through a change control process.
A wide set-off right. A clause letting the client deduct any amount it claims you owe (under this or any other contract) from what it owes you gives it a lot of leverage in a dispute. Ask for set-off to be limited to sums agreed or decided to be due, or remove it.
Very long payment periods. Some large clients push for 90 or 120 days. If you can’t shorten the period, ask for a deposit or milestones so you aren’t funding the whole project, and remember the 60-day point above.
Pay-when-paid. If you are subcontracting, watch for clauses saying you are only paid when the client’s own customer pays. You would be taking the credit risk on someone you have no contract with.
Invoicing habits that help
Invoice as soon as the contract allows. Where the payment period runs from the invoice date, a late invoice means late payment.
Make invoices easy to process: your business name and address, the client’s purchase order number if it uses them, an invoice number and date, the due date, a clear description of the work, the amount and VAT, and your bank details. Ask the client at the start who approves invoices and whether they need to go to a particular address or portal. Many late payments are really invoices stuck in someone’s inbox.
Follow up politely before the due date and again shortly after it. Accounting or invoicing software that tracks due dates and sends reminders makes this much less of a chore.
If the client doesn’t pay
Suspend work if the contract allows it, and say so in writing. Carrying on for a client who isn’t paying only increases the debt.
Escalate. Your day-to-day contact may have no say over payments. Contact the finance team or the person who signed the contract.
Send a formal demand. Set out the amount, the invoices, statutory interest and compensation, and a date for payment. Before issuing court proceedings against a business you should follow the court’s pre-action expectations, which include writing to the debtor first and giving it a reasonable time to respond.
Consider a claim. Money claims can be started online. Claims of up to £10,000 are usually dealt with on the small claims track, where each side’s recoverable legal costs are very limited. Bigger debts, or a client who disputes the work, are the point to take legal advice.
Know when to stop. For a small debt, recovery can cost more than it brings in. If you write it off, at least ask for payment upfront if you ever work for that client again.
Checking the contract before you sign
Payment terms are much easier to fix before you sign than after the first invoice goes unpaid. QuickLegalCheck reviews consultancy agreements and flags payment, acceptance and set-off clauses that could hold up your cash.
Get started with a free first look.
Related: what the consultancy agreement review covers, and a complete sample report.