Handling arrears and disputes: credit control, interest, and compliant recovery steps
Arrears are frustrating at the best of times. When they turn into disputes, they can quickly swallow your week, drain cash flow, and create tension with tenants, leaseholders, suppliers, and even your own team.
If you manage service charges, rent collection, or trade debt, the goal is not to become “harder”. It is to become clearer, more consistent, and more compliant. That means tightening up your credit control process, knowing when interest is fair and enforceable, and following recovery steps that protect your position if things escalate.
Late payment is not a niche problem in the UK. Government research has described late payments as costing the UK economy close to £11 billion per year and contributing to business failures. That matters because your arrears issue is rarely “just” an accounting problem. It is usually someone else’s cash flow problem landing in your inbox.
Below is a practical, step-by-step approach you can apply across service charge arrears, property management debts, and everyday business invoices, with the right compliance checks along the way.
1) Start with the basics: arrears and disputes are not the same thing
Before you chase payment, you need to classify what you are dealing with:
- Pure arrears (no dispute): the payer agrees the amount is due, but has not paid.
- Query or dispute: the payer challenges the amount, the timing, the service, the apportionment, the documentation, or the authority to demand it.
- Part-pay and withhold: they pay “what they think is fair” and hold back the rest.
- Chronic late payer: they always pay, but always late. This is where better terms and consistent consequences matter.
This classification matters because the recovery route changes. If you treat a genuine dispute like simple arrears, you inflame it. If you treat clear arrears like a dispute, you delay cash you could have collected with a structured process.
If you are managing service charge accounts, solid reporting and clarity on what is due (and why) reduces disputes from the start. That is where specialist support like service charge accounting can save you time and friction.
2) Build a credit control process you can run every month (not just when you are stressed)
The most effective credit control is boring. It is a routine that runs whether you feel like it or not.
A simple monthly framework:
- Weekly: review aged receivables and arrears lists (by building, unit, tenant, or customer)
- Monthly: send statements, reconcile balances, and escalate anything beyond your agreed timeframes
- Quarterly: review payment terms, common dispute reasons, and whether your documentation is actually working
If you are juggling this alongside everything else in the business, an outsourced finance department can cover invoicing, statements, and credit control in a consistent way so arrears do not build quietly in the background.
3) Prevention first: set your paperwork up to win disputes before they happen
Most disputes are not created by “awkward” players. They are created by unclear demands and missing information.
For service charges and property management
Disputes usually cluster around:
- Budget versus actuals (and why there is a variance)
- Reserve or sinking fund contributions
- Apportionment (who pays what, and why)
- Timing of demands and supporting documents
- Whether costs are recoverable under the lease
If you want fewer arguments, your reporting has to make it easy for the reader to understand the story. Start with strong budgeting and documentation. For example, service charge budgeting is not just “numbers” — it is how you justify the plan and reduce shocks later.
Apportionment is another flashpoint. If people do not understand how you split costs, they will assume it is wrong. A clear explainer like apportionment methods explained can help you sanity-check your approach and improve transparency.
For trade debt and general invoicing
Disputes usually happen because:
- The purchase order or quote does not match the invoice
- The scope changed, but the paperwork did not
- The invoice lacks detail (dates, description, reference numbers)
- There is no agreed payment term, so everyone makes it up
Good bookkeeping is not just compliance. It is evidence. When you need to prove what was agreed, what was delivered, and what is outstanding, clean records become your leverage.
4) Your arrears timeline: a compliant escalation path that feels fair
Here is a sensible workflow that works for most businesses and property managers. Adjust the pace based on your contracts, lease terms, and the relationship — but keep it consistent.
Day 1 to Day 7 overdue: friendly nudge plus clarity
- Send a short reminder
- Attach the invoice or demand and a statement
- Ask if there is any query holding payment up
- Confirm the payment method and bank details
This sounds basic, but it prevents the “we did not receive it” loop.
Day 7 to Day 14 overdue: confirm status and request a plan
- Phone call or direct email to the decision-maker
- Ask for a payment date, not a general promise
- If they cannot pay in full, propose a simple payment plan (with dates)
Day 14 to Day 30 overdue: formalise and start documenting
- Send a firmer reminder summarising:
- what is owed
- what it relates to
- what has been provided as support
- what you need next (payment date or dispute details)
- Log all communications in one place (dates, names, what was agreed)
If you are using Xero, make this easy on yourself by keeping the ledger and notes tidy. A strong month-end process helps you spot debtor issues early. See month-end in Xero for the kind of reporting that highlights when debtor days are creeping up.
Day 30 plus overdue: escalation, interest decisions, pre-action steps
At this stage, you choose one of 3 routes:
- Payment plan (if they are cooperative and credible)
- Dispute process (if they raise a genuine challenge)
- Formal recovery (if they ignore you or stall without reason)
Late payments are widespread across UK businesses. Surveys have found high proportions of companies experiencing late payment and long average delays. That is exactly why you need a process that does not rely on motivation.
5) Handling disputes properly: triage, evidence, and calm communication
A dispute does not mean you stop. It means you switch mode.
Step 1: acknowledge the dispute and set a timeline
Reply with something like:
- “Thanks for raising this. Please send any supporting points or documents by Friday. We will review and respond by next Wednesday.”
That does 2 things:
- It shows you are taking it seriously
- It stops the dispute becoming an endless, drifting conversation
Step 2: triage the dispute type
Most disputes fall into a handful of categories:
- Maths errors: wrong apportionment, duplicate charge, wrong period
- Evidence gaps: missing invoice copies, no breakdown, unclear narrative
- Scope challenges: “this cost should not be charged to us”
- Quality challenges: “works were not done” or “not done properly”
- Authority challenges: “you cannot demand this” or “you are not the landlord”
Step 3: answer with evidence, not emotion
Your best dispute responses include:
- A simple summary of the point raised
- The relevant lease clause or contract term (where appropriate)
- A clear breakdown or reconciliation
- Copies of key invoices or contractor support where needed
- A conclusion: what is payable now, what is being corrected, and what happens next
Year-end reporting is where disputes either die or multiply. Clear year-end packs reduce arguments because the numbers are properly reconciled. If this is your world, year-end service charge statements are a useful benchmark for what good looks like.
6) Interest: when it helps, when it backfires, and what is legally supported
Interest is not a punishment. It is either:
- a contractual term
- a statutory right (in certain cases)
- or something you cannot charge at all
Business-to-business invoices: statutory interest and fixed recovery charges
For B2B debts, the UK allows statutory interest on late payments of 8% plus the Bank of England base rate, unless your contract sets a different rate.
You can also charge a fixed sum per late invoice for debt recovery costs:
- Up to £999.99: £40
- £1,000 to £9,999.99: £70
- £10,000 or more: £100
Practical tip: interest can be useful with chronic late payers because it signals that “late” is not the default. But with a good client who has hit a temporary cash crunch, it can damage the relationship. Decide based on pattern and behaviour, not frustration.
Service charges and residential scenarios: check the lease and required notices
With service charge arrears, what you can charge and how you demand it often depends on the lease and the statutory requirements around demands.
In England, a service charge demand must be accompanied by a summary of rights and obligations. Without it, leaseholders may be able to withhold payment until the summary is provided.
There is also an important “timing” protection: under Section 20B of the Landlord and Tenant Act 1985, costs incurred more than 18 months before a demand is served may be irrecoverable unless the required notice conditions are met.
And where a written demand is used, Section 47 of the Landlord and Tenant Act 1987 requires specific landlord information to be included.
This is why “just add interest” is not a casual decision in service charge arrears. It needs to be grounded in the lease wording and compliant demand paperwork.
If you want your service charge process to be aligned with best practice expectations, it is worth reviewing RICS and ARMA best practices for service charge accounts.
7) Compliant recovery steps: what escalation looks like when you want to stay on the right side of the rules
You do not need to be aggressive to be effective. You need to be consistent, accurate, and properly documented.
Step 1: final demand (still professional, but clear)
Your final demand should include:
- Balance due and what it relates to
- What has already been sent (invoices, statements, breakdowns)
- A clear deadline (for example, 7 or 14 days)
- What happens next if unpaid (letter before action, tribunal or court route, referral to solicitors or collections)
Step 2: letter before action (or the relevant formal step)
For trade debts, your next formal step is often a letter before action aligned to pre-action expectations (this is where you may involve a solicitor).
For service charge disputes, escalation may involve the First-tier Tribunal (Property Chamber) if the matter is about payability or reasonableness. Government guidance explains how property tribunal cases work in practice.
Shelter also summarises that applications can be made to the tribunal to determine whether a service charge is payable in many circumstances.
Step 3: keep your evidence “court-ready” from day 1
Whether you end up at tribunal, small claims, or simply negotiating a settlement, your file should be easy to follow:
- The underlying agreement (lease, contract, engagement letter)
- All demands and invoices issued (with dates)
- Statements and reconciliations
- Emails and call notes
- Any dispute documents and your responses
- A clear timeline of events
This is also where good housekeeping matters. A strong year-end process ensures your receivables and arrears are accurate and defensible. If you need a benchmark, year-end checklist for property portfolios is a practical reference point.
8) Payment plans that actually work (and reduce repeat arrears)
A payment plan should protect cash flow and reduce the chance of another dispute.
A strong plan includes:
- A clear starting payment (even if small)
- Fixed dates (not “end of month”, use actual dates)
- A written agreement confirming what happens if they miss a payment
- A rule for new charges: do they pay current invoices on time as well, or does everything roll into the plan?
If you manage multiple properties or entities, consider tracking arrears by unit and by person, not just by building. It helps you identify patterns.
For landlords who want tighter reporting and less admin around rent and arrears, having specialist support from landlord accountants can make the process far more structured.
9) A quick word on tone: firm beats angry, every time
Most arrears situations resolve without legal action. The outcomes improve when you:
- keep messages short and factual
- avoid emotional language
- focus on dates, amounts, and next steps
- respond quickly to genuine disputes with evidence
It is worth remembering: the stronger your process, the less you need to “chase”. And when you do need to escalate, you have a clean file and a clear story.
FAQs
Should you charge interest on overdue invoices?
If it is a business-to-business debt, you may be able to charge statutory interest of 8% plus the Bank of England base rate (unless your contract sets a different rate). You can also charge fixed recovery costs per late invoice depending on the debt size. In service charge scenarios, interest and recovery steps depend heavily on the lease wording and compliant demands, so take care before adding charges.
What is the biggest mistake businesses make with arrears?
Letting it drift. The longer a balance sits, the more likely it becomes “normal” to the payer. A simple weekly review of aged debtors, consistent reminders, and clear escalation dates make a bigger difference than any clever wording.
How do you reduce service charge disputes?
Clarity and evidence. Strong budgeting, transparent apportionment, and well-presented year-end packs reduce the number of arguments. It also helps to make sure demands include the required summaries and notices, because non-compliant paperwork can derail recovery.
When should you escalate to formal recovery?
When they ignore you, repeatedly break promises, or use “queries” as a delay tactic without providing specifics. Escalation should be based on behaviour and timeline, not emotion.
Need a cleaner arrears process (without spending your life chasing)?
If arrears and disputes are eating into your time, you do not need to handle it alone. FHP Accounting can help you tighten up your reporting, strengthen your documentation, and run a consistent credit control process that protects cash flow and reduces friction.
Start by speaking to the team via Contact Us and let’s put a clear, compliant recovery process in place.
Ready to take the hassle out of your finances? Speak to FHP Accounting today — your trusted accountants nottingham for clear advice and fast, friendly support. Whether you need reliable accountant payroll services, specialist help from property tax accountants, seamless xero bookkeeping services, or a dedicated accountant for landlords, our team is here to help you stay compliant, save money, and grow with confidence. Get in touch now to book your consultation.
