Late payments are an issue within every sector, but within the construction industry they pose a particularly serious risk.
Cash flow is critical to the success of every construction project. Late payments or long payment periods can be the difference between a successful project and insolvency.
A recent study shows that 87 per cent of construction firms report being paid late on a regular basis, and one in five insolvencies in the construction industry are attributed to late payments.
Anyone working in the construction industry will have experienced this issue, which is why they must have processes in their contracts to mitigate the effects of late payments.
What needs to be in my contract to avoid late payments?
Several contract types can be suitable for including a late payment provision.
Many opt for a Joint Contracts Tribunal (JCT) contract, which allows for a suspension of work if contractors are not being paid, they also include robust notice provisions.
However, please note that if you have a construction contract as defined by the Housing Grants, Construction and Regeneration Act 1996, there is a statutory right to suspend work for non-payment, although there are strict notice requirements to do so, and so early advice is essential.
Another option could be New Engineering Contracts (NEC), which promote collaboration and transparency.
These contracts have defined payment periods and give early warning notices so contractors can get paid on time.
If neither of these contracts fits your needs, you may want to consider a bespoke construction contract. These are built to fit the exact needs of your project.
For late payment provisions, contracts should include clear payment schedules, interest clauses for late payments and defined dispute resolution pathways.
Having provisions for late payments within your contract sets out early expectations and can reduce uncertainty between parties involved in the project.
What can then be done if payments are made late or not at all?
Dealing with late payments is frustrating for everyone involved. However, if your contract contains clear late payment provisions, there are several actions available before court proceedings or adjudication are considered.
Depending on the contract used, you may be entitled to issue formal notices, suspend works until payment is received or begin the dispute resolution process set out in the agreement.
JCT contracts, for example, contain provisions that may allow contractors to suspend performance where payment has not been made, provided the correct notice requirements are followed.
NEC contracts include mechanisms for raising payment issues at an early stage and resolving disputes through the procedures set out in the contract.
If these contractual remedies do not result in payment, the first practical step is often to contact the debtor directly by email and follow up with a phone call.
As a final option, legal action can be taken to recover the debts. This can either be by way of court claim or adjudication. Adjudication is often a quicker alternative to court proceedings and allows the project to continue.
Businesses may also be entitled to charge interest on late payments under the Late Payment of Commercial Debts (Interest) Act 1998 unless there is an agreed contractual rate of interest, such as in the JCT and NEC, in which case a party will be restricted to claiming the contractual rate of interest.
This legislation allows creditors to charge interest at eight per cent above the Bank of England base rate, as well as claim reasonable debt recovery costs.
Taking early action and relying on the remedies set out within your contract can often help resolve payment disputes before they escalate further.
Government reforms to late payments
In May 2026, the Government introduced the Small Business Protections Bill, which is one of the largest crackdowns on late payments in over 25 years.
The Bill includes:
- 60 Day cap – This cap limits maximum B2B payment terms to 60 days for large firms dealing with smaller clients.
- Mandatory interest – This interest has now become mandatory, beforehand, businesses could opt out of charging the interest.
- Invoice dispute deadlines – There is now a fixed window, proposed at 30 days, for buyers to dispute an invoice before any interest automatically starts accruing.
- Commissioner powers – The Small Business Commissioner now has powers to directly investigate, adjudicate and issue fines to persistent late payers.
- Transparency – Large companies with poor payment performance should publish formal improvement plans and report on unpaid statutory interest.
Currently, the Bill is passing through parliament for further amendments. This would include a ban on retention payments in qualifying construction contracts.
The amendments are currently in the House of Lords, so it may be a while before they come into effect.
How can we help?
A contract can certainly help businesses avoid late payments. However, even when you have an ironclad contract, people may still pay late.
Here at Palmers, we are here to support you with the writing of contracts to help mitigate against late payments. Should a late payment become a persistent issue, we can support you in dispute resolution.
We understand that late payments are frustrating, our compassionate team are here to help you every step of the way.
For support with mitigating against late payments, get in touch today!