# S17. Getting paid - setting terms before you start work
If you don't set payment terms up front, you're playing the contractor's game, not yours. The Construction Act and Late Payment Act give you tools, but only if your contract and invoices line up with them.
1. THE SHORT VERSION
The Construction Act 1996 says longer jobs must have stage or periodic payments and a clear mechanism for when money is due and when it must be paid.
The Late Payment of Commercial Debts (Interest) Act 1998 lets you charge statutory interest and compensation if business customers pay late, unless your contract already gives a "substantial remedy".
None of that helps if you never agreed proper terms and your payment applications are vague.
2. WHAT THE CONSTRUCTION ACT ACTUALLY GIVES YOU (IN PLAIN ENGLISH)
For most construction contracts (including many subby contracts), Part II of the Housing Grants, Construction and Regeneration Act 1996 covers:
- Right to stage/periodic payments if the job is expected to last 45 days or more.
- Every contract must have an "adequate mechanism" for deciding:
- What payments become due.
- When they become due.
- A final date for payment.
- There must be payment notices and a clear process for "pay less" notices. If the payer doesn't issue their notice in time, your application can become the "notified sum".
- "Pay when paid" clauses (only paying you if they get paid) are mostly banned, except where the upstream party is insolvent.
If the contract doesn't do this properly, a default set of rules ("the Scheme") is implied - including default due dates and a default final payment date (17 days after due date).
3. WHAT THE LATE PAYMENT ACT GIVES YOU
The Late Payment of Commercial Debts (Interest) Act 1998 is your stick for late payers in business‑to‑business jobs.
Unless your contract already gives you a "substantial remedy" for late payment, the Act lets you:
- Charge statutory interest at 8% above Bank of England base rate on overdue commercial debts.
- Claim fixed compensation per invoice (currently £40/£70/£100 depending on the size of the debt).
The "relevant date" is usually the day after the final date for payment under your contract.
If you've put your own fair late‑payment clause in the contract, that may override the statutory one.
4. TERMS YOU SHOULD SET BEFORE YOU LIFT A TOOL
Whether you're contracting to a main or working direct for a client, get this down in writing (in your quote, order, or terms):
Payment structure
- For jobs over 45 days: use stage or monthly payments as standard.
- Make clear when you'll apply for payment (e.g. monthly on the 25th, or at specific milestones).
Due date and final date for payment
- "Due date" – the date your payment becomes due (e.g. date of your application or a set date each month).
- "Final date for payment" – last date they must pay (e.g. 14 or 21 days after due date).
Example wording:
"Payment applications will be submitted on [DATE/EVENT]. The due date for each payment is [DUE DATE]. The final date for payment is [X] days after the due date."
Payment notices and pay less notices
- Require the payer to issue a payment notice within a set time (e.g. within 5 days of the due date), stating what they think is due and why.
- Require any pay less notice to be issued a set number of days before the final date for payment, with reasons and calculations.
Late payment interest and costs
- For business clients, either rely on the Late Payment Act or set your own interest clause.
Example:
"We reserve the right to charge interest on overdue sums at [X]% per annum above the Bank of England base rate, and to claim recovery costs, in line with the Late Payment of Commercial Debts (Interest) Act 1998."
It doesn't mean you'll always enforce it, but it sets expectations.
5. DIRECT TO HOMEOWNER vs SUBBY TO MAIN - THE REALITY
Domestic jobs (homeowners) – Construction Act rules on payment don't automatically apply to every pure consumer contract in the same way, but the same ideas (clear stages, dates, fairness) still matter. You're leaning more on Consumer Rights Act and clear written terms.
Subby to main contractor / commercial client – the Construction Act applies in full if it's a "construction contract" as defined, and the Late Payment Act can apply to late commercial debts unless your contract already gives you a substantial remedy.
Either way, if the payment mechanism is missing or non‑compliant, the statutory Scheme plugs some gaps - but you don't want to rely on that blindly.
6. THINGS TO WATCH OUT FOR IN OTHER PEOPLE'S TERMS
Common traps in main contractor or big‑client contracts:
- Very long payment periods – 60 or 90 days from month end may be legal but ruin your cash‑flow. Try to negotiate shorter or at least know what you're signing.
- "Pay when paid" clauses – mostly unenforceable under the Construction Act except if the employer is insolvent, but still appear in some small‑print.
- Vague or unfair set‑off rights – terms that let them deduct almost anything for any reason without proper notice.
- Missing or non‑compliant payment notice/pay less notice process – if they don't follow the Act, your application can become the "notified sum", but you need to have made a clear application.
If you don't understand a clause, assume it's there for their benefit, not yours.
7. HOW TO WRITE A SIMPLE PAYMENT CLAUSE INTO YOUR OWN DOCS
When you're the one setting the terms (your quote / small contract), keep it plain:
Example for a small contractor:
Payment terms (jobs over 4 weeks):
We will submit a payment application [monthly on the last working day of the month / at the following stages: …].
The due date for each payment is the date of our application.
The final date for payment is [14/21] days after the due date.
If you disagree with the amount claimed, you must send us a written notice within [X] days of the due date, stating the amount you agree is due and how it is calculated.
If you intend to pay less than the notified sum, you must send us a "pay less" notice at least [X] days before the final date for payment, explaining the reasons and how the amount is calculated.
If payment is late, we may charge interest and recovery costs in line with the Late Payment of Commercial Debts (Interest) Act 1998.
This mirrors the Construction Act ideas without sounding like a lawyer.
8. WHAT YOU ACTUALLY DO WHEN PAYMENT IS LATE
Having rights is one thing; using them is another. Rough sequence:
-
Check your own paperwork
- Did you submit a clear application/invoice?
- Did you follow the contract dates and format?
-
Check their notices
- Did they issue a valid payment notice or pay less notice on time? If not, under the Construction Act the "notified sum" may be what you applied for.
-
Chase in writing
- Short, factual email/letter referencing the contract, invoice number, due date, and asking for payment by a specific date.
-
Warn about interest / next steps
- For commercial debts, you can point to your interest clause or the Late Payment Act.
-
Escalate if needed
- Construction contracts often allow adjudication – a fast, statutory dispute process – especially around non‑payment.
- For small debts or consumer jobs, you might use money‑claim processes once you've tried to resolve it.
You won't always go all the way, but knowing you could puts you in a stronger position.
9. QUICK CHECKLIST - PAYMENT TERMS BEFORE YOU START
Before you start a job, ask:
- Do I know when I'll be paid and how that's worked out? (Due dates, final dates.)
- Is there a clear payment structure (stages/monthly) for jobs over 45 days?
- Does the contract mention payment notices and pay less notices with clear deadlines?
- Is there anything that looks like "pay when paid" or vague long delays?
- Have I included at least a basic late payment interest clause for commercial clients, or am I happy to rely on the statutory rules?
WHAT TO DO NEXT
- Before your next job, write clear payment terms into your quote: due date, final date, stage payments.
- Include a late payment interest clause for commercial clients referencing the Late Payment Act.
- Keep copies of every payment application and invoice you send.
- If payment is late, chase in writing with the invoice number, due date and a clear deadline.
- If it stays unpaid, look into adjudication - it is fast and designed for construction disputes.
SOURCES
- Housing Grants, Construction and Regeneration Act 1996 (Part II). https://www.legislation.gov.uk/ukpga/1996/53/part/II
- Late Payment of Commercial Debts (Interest) Act 1998. https://www.legislation.gov.uk/ukpga/1998/20
- Scheme for Construction Contracts (England and Wales) Regulations 1998. https://www.legislation.gov.uk/uksi/1998/649
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