Industry guide · UK
Credit control for construction companies
By AutoSettle · Updated
Quick answer
Credit control for construction means managing payment applications, due dates, pay less notices and retentions so money arrives on the dates your contract and the Construction Act set. It works best when every application is logged against the final date for payment, chased before it falls due, and escalated quickly using your statutory rights.
Construction runs on long payment chains. A main contractor waits on a client, a subcontractor waits on the main contractor, and a supplier waits on everyone. When one link pays late, the delay moves down the chain, and it is usually the smaller firms at the bottom that run short of cash first.
Good credit control in construction is not only about sending reminders. It is about knowing your contractual payment mechanism, submitting applications that cannot easily be challenged, and acting the day a deadline passes rather than weeks later. This guide explains how UK construction businesses can build that discipline and where automation helps.
Why construction payments run late
Interim applications and valuations
Most contracts pay monthly against an application for payment. If the application is late, incomplete or sent to the wrong person, the payer can argue the clock never started. Many disputes begin with an administrative gap rather than a real disagreement about the work.
Pay less notices
Under the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009), a payer who wants to pay less than the notified sum must serve a valid pay less notice before the prescribed period. Payers who miss this deadline often still hold back money, hoping the payee will not push back.
Retentions
Retentions, commonly 3–5% of each payment, are held until practical completion and the end of the defects period. They are frequently forgotten by both sides, and release dates can slip by months or years without anyone chasing.
Variations and disputed extras
Extra work instructed verbally on site is easy to dispute later. Without a written instruction and a clear price, variations become the part of the account that is paid last, or not at all.
Long payment chains
Subcontractors are often paid only after the main contractor has been paid. Pay-when-paid clauses are generally ineffective under the Construction Act except in cases of upstream insolvency, but the practical pressure to wait remains.
A credit control process for construction firms
- 1
Map the payment mechanism for every contract
Record the application date, due date, final date for payment and pay less notice deadline for each job. If a contract is silent, the Scheme for Construction Contracts fills the gaps.
- 2
Submit complete applications on time
Send each application to the named contact with supporting measurements, photos and signed variation instructions. Keep proof of delivery so the due date cannot be argued.
- 3
Chase before the due date
A short, polite check a few days before payment is due catches missing approvals while there is still time to fix them.
- 4
Act the day the final date passes
If no valid pay less notice was served and payment has not arrived, the notified sum is due. Send a firm reminder that references the contract and your statutory rights.
- 5
Add statutory interest and compensation
Where your contract has no substantial remedy for late payment, claim interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
- 6
Escalate using the right tool
Consider suspending work after giving at least seven days' written notice, referring the dispute to adjudication, or sending a letter before action for undisputed debts.
- 7
Diary every retention release
Log practical completion and defects period end dates, then chase each retention release as its own invoice.
Manual chasing vs automated credit control in construction
| Task | Manual approach | With AutoSettle |
|---|---|---|
| Tracking due dates | Spreadsheet per job, updated when someone remembers | Due dates pulled from Xero, QuickBooks or Sage and watched daily |
| Pre-due reminders | Rarely sent | Scheduled automatically before each due date |
| Overdue follow-up | Phone calls when cash gets tight | Staged email, SMS and letter sequence that escalates on its own |
| Statutory interest | Often not claimed | Calculated at base rate + 8% and added on a late fee invoice |
| Retentions | Forgotten until final account | Tracked as separate invoices with their own reminders |
| Escalation | Ad hoc | Structured pre-legal steps including a letter before action |
Your payment rights in construction
Construction contracts covered by the Construction Act must include an adequate mechanism for stage or interim payments, and must say when payments become due and the final date for payment. If they do not, the Scheme for Construction Contracts applies.
If a payer does not serve a valid pay less notice in time, the notified sum must be paid in full by the final date for payment. You also have a statutory right to suspend performance for non-payment after giving at least seven days' written notice, and to recover reasonable costs of suspension.
Separately, the Late Payment of Commercial Debts (Interest) Act 1998 lets businesses claim statutory interest at 8% above the Bank of England base rate, plus fixed compensation of £40 for debts under £1,000, £70 for £1,000 to £9,999.99 and £100 for £10,000 or more, unless the contract provides a substantial alternative remedy.
This guide is general information, not legal advice. For disputed sums or adjudication, speak to a construction solicitor.
Work out what you can claim with our late payment interest calculator.
Worked example (illustrative)
Hartley Brooks Ltd, a fictional groundworks subcontractor, submits a monthly application for £18,400 on the 25th. The final date for payment is 21 days after the due date. No pay less notice arrives, and the payment date passes.
With automated credit control, a pre-due reminder goes out five days before the due date, a firm notice goes out the morning after the final date, and a late fee invoice is raised for statutory interest plus £100 fixed compensation. The main contractor pays within a week. These figures are illustrative only.
Paperwork that protects your cash flow
Most construction payment disputes are won or lost on paperwork. Before chasing harder, make sure these are in place for every job:
- A signed contract or accepted quotation that states the payment terms.
- Written instructions for every variation, even if confirmed by email after a site conversation.
- Dated applications for payment with proof of delivery to the named contact.
- A log of pay less notices received, with the date each arrived.
- Practical completion certificates and defects period end dates for retention release.
Early warning signs a construction customer may not pay
Payment problems in construction rarely come out of nowhere. Watch for these signals and tighten your approach as soon as you see them:
- Pay less notices becoming routine rather than occasional.
- Valuations being cut without a clear explanation.
- Requests to delay payment until the client pays the main contractor.
- Other subcontractors on site reporting late payment.
- Changes of company name, directors or trading entity mid-project.
How AutoSettle supports construction credit control
AutoSettle connects to Xero, QuickBooks or Sage and reads your invoices and due dates automatically. Each overdue application or invoice is chased on a staged plan, from polite pre-due reminders through to firm notices, late fee invoices and a letter before action, with you approving the risky steps.
Because retentions can be raised as their own invoices, they get their own reminders instead of being forgotten until the final account. Debtors can pay by card or bank transfer from a secure portal, and payments are posted back to your accounting system.
Frequently asked questions
What is a pay less notice?
A written notice from the payer stating that they intend to pay less than the notified sum, the amount they will pay and how it is calculated. It must be served before the deadline set by the contract or the Scheme for Construction Contracts.
Are pay-when-paid clauses allowed in UK construction contracts?
Generally no. The Construction Act makes pay-when-paid clauses ineffective, except where a party further up the chain is insolvent.
Can I stop work if I am not paid?
Yes. If a sum due is not paid in full by the final date for payment and no effective pay less notice was served, you can suspend performance after giving at least seven days' written notice.
Can I charge interest on late construction payments?
If your contract does not provide a substantial remedy for late payment, you can claim statutory interest at 8% above the Bank of England base rate plus fixed compensation of £40, £70 or £100 depending on the debt size.
How do I chase retention money?
Diary the practical completion and defects period end dates, raise an invoice or application for each release, and chase it with the same reminders you use for interim payments.
Is adjudication better than court for construction debts?
Adjudication is designed to be quick, usually producing a decision in 28 days, and is a statutory right for most construction contracts. Court or a letter before action can suit clear undisputed debts. Take legal advice on which route fits.
Does AutoSettle work for subcontractors?
Yes. AutoSettle connects to Xero, QuickBooks or Sage and chases overdue invoices for main contractors, subcontractors and suppliers alike.