How to Draft a Commercial Contract That Helps You Get Paid on Time

Late payments are a growing challenge for UK businesses — particularly in the current high-interest, high-cost environment. But much of the problem can be avoided long before any invoice is raised. The secret? A watertight commercial contract.

By setting out clear payment terms, late payment rights, and collection protections from the start, you give your business both leverage and clarity. At CPA, we’ve spent over a century helping members secure prompt payment — and we’ve seen that good contracts are often the first line of defence.

🧩 Key Contract Clauses to Improve Collections

1. Clear Payment Terms

Spell out exactly when payment is due — for example, “30 days from invoice date” — and how it should be made. Avoid vague phrases like “payment on receipt.”
✅ Include: method of payment, due date, and currency.
✅ Add: reference to Late Payment Legislation to confirm that statutory compensation and interest will apply if payment is late. The phrase “late payment legislation” refers to the amended Late Payment of Commercial Debts (Interest) Act 1998, the Late Payment of Commercial Debts Regulations 2002 and the Late Payment of Commercial Debts Regulations 2013

2. Late Payment Compensation

Under UK law, you can claim fixed compensation (from £40 to £100 depending on invoice size) for each late paid invoice, plus reasonable recovery costs. Including this right in your contract acts as a clear deterrent to chronic late payers.Sme contracts make the error of imposing their own penalties and these can be challenged. State you will claim the legislated interest and compensation plus reimbursement of any third party costs incurred in the collection of late payments.

3. Retention of Title

If you supply goods, make ownership conditional on full payment. This clause lets you reclaim goods or assert ownership if a buyer becomes insolvent before paying. It’s a simple but powerful form of credit protection.

4. Director or Personal Guarantees

When dealing with limited companies or start-ups, a director’s personal guarantee can make all the difference. It provides accountability and reduces risk where the business itself has limited assets. Note: for a guarantee to be enforceable, it needs to be in writing, it must clearly identify the parties and what obligations are covered — e.g. all sums due under the agreement – and to avoid it being challenged by the director, saying they were pressured, misled, or didn’t understand what they were signing, ⚠️ make sure there is a clear instruction, before they sign, that the guarantor should seek independent legal advice before signing — this reduces the risk of later disputes.

5. Defined Credit Limits and Terms

State your credit approval process and make it clear that continued supply depends on keeping within agreed limits and paying on time. This allows you to suspend supply without breaching contract if the account becomes overdue.

6. Dispute Resolution and Communication

Set time limits for raising invoice disputes (e.g. within 7 or 14 days). Include a clause encouraging early resolution or third-party mediation before litigation.

7. Jurisdiction and Governing Law

Always confirm that your contract is governed by English law and subject to UK courts. This avoids costly cross-border disputes and keeps debt recovery straightforward.

8. Keeping Contact and Company Details Up-to-Date

Contracts should require customers to notify you immediately of any change in registered office, trading address, company name or contact details. It’s surprising how many invoices go unpaid simply because they’re sent to an outdated address. ⚠️ And make sure you have the exact company name on the contract! So many contracts become invalid because the name is inaccurate – look it up on Companies House or a CPA Credit-care report to be sure. (e.g. Not “Joe’s Repairs” when it’s actually “Joe Blogg’s Repairs (Wirral) Limited t/as Joe’s Repairs”)

💡 CPA Tip

A well-written contract protects your business; CPA helps enforce it.
Our Creditcare reports give you the confidence to set the right credit limits, and our monitoring service warns you of any changes in a customer’s financial health. Our commercial credit application forms can be used to get the correct details of your customer and if they are a non-limited business, obtain a report on the Business owner. If payment still doesn’t arrive, our Overdue Account Recovery service directs customers to pay you directly — maintaining goodwill while getting results.

⚖️ Important Note

The Credit Protection Association (CPA) are experts in credit management, payment behaviour, and debt recovery — not legal practitioners.
The guidance in this article is for general business information only and does not constitute legal advice.
You should always seek independent legal advice before drafting or amending your commercial contracts.

🏁 Conclusion

Good contracts make good business.
Combine strong contractual terms with CPA’s proven credit management tools and you’ll have a complete system to prevent, detect, and resolve late payments — efficiently, effectively, economically, and ethically.

Call ☎️ 020 8846 0000 or email 📧 nsm@cpa.co.uk today to discuss how we can help you strengthen your payment processes from contract to collection.