Late Payment Interest: How Much You Can Legally Charge

‍‌​​​‌‌‌​‌​​​‌‌‌​​​​​​​‌‌​​‌‌‌​‌‍The Late Payment of Commercial Debts (Interest) Act 1998 lets you charge statutory interest at 8% above the Bank of England base rate, plus fixed recovery costs, when a business customer pays you late. You don't need it written in your contract – it's implied by law unless you've already agreed a fair late-payment remedy.

This is general guidance only and is not legal advice. Always get proper advice before you lean on the Act in a live scrap.

1. WHEN YOU CAN ACTUALLY USE IT

You can usually invoke the Act when:

• You've supplied goods or services under a commercial contract.
• Your customer is another business or public authority (company, LLP, partnership, sole trader), not a pure consumer.
• The contract doesn't already give you a "substantial remedy" for late payment – for example a clear, reasonable contractual interest clause.

You cannot use statutory interest under the Act if:

• The debtor is a pure consumer.
• Your contract has a proper late-payment interest clause that would be seen as fair compensation – you don't get to stack both.

Construction firms, sole traders and limited companies all count as businesses for this – so it's squarely aimed at the kind of late-paying outfits you deal with.

2. WHAT YOU CAN CLAIM – IN PLAIN NUMBERS

If a commercial invoice goes overdue, you can claim three things under the Act:

Statutory interest

• Rate: 8% per year above the Bank of England base rate.
• Officially, it's 8% over the relevant "reference rate" – the base rate at 31 Dec and 30 Jun that applies for the following 6-month period.
• It runs from the day after the invoice becomes late until it's paid.
• Example from government guidance: if you're owed £1,000 and base rate is 0.5%, statutory interest is 8.5% a year, or about 23p per day. Over 50 days that's £11.50.

Fixed late-payment compensation per invoice

On top of interest, you can add a one-off fixed sum per invoice:

You can charge this once per invoice, not per reminder, but across many invoices it adds up.

Reasonable recovery costs

If your actual debt-chasing costs are higher than the fixed sum, you can also claim the extra reasonable costs on top – for example if you've had to pay a collection agency or external legal help.

It's deliberately chunky – more generous than the flat 8% you'd usually get under the County Courts Act – so it works both as compensation and a deterrent.

3. WHEN A PAYMENT BECOMES "LATE" UNDER THE ACT

Under the government guidance:

If you agreed a payment date, payment is late the day after that date – as long as the date is usually:

• Within 30 days for public authorities;
• Within 60 days for business-to-business deals (you can agree longer if it's fair to both sides).

If you didn't agree a date, payment is late 30 days after:

• The customer gets your invoice, or
• You deliver the goods or finish the work, whichever is later.

From that "late" date, you can:

• Start clocking up the 8% + base-rate interest, and
• Add the fixed £40/£70/£100 per invoice, without waiting for a court to bless it.

There are free online calculators that do the sums for you if you don't want to get nerdy with daily interest.

4. HOW TO ACTUALLY USE IT IN YOUR CHASING

Here's the practical way to turn this law into leverage, not just trivia.

Step 1 – normal chaser Early reminder a few days after due date: polite, attach invoice, ask for payment date. No law, just basic credit control.

Step 2 – "Late Payment Act" chaser Once it's clearly late, send a stronger email/letter that:

• States the principal owed.
• States that the invoice is now late under the Late Payment Act.
• Sets out statutory interest and fixed charges you're entitled to (even if you choose to waive some).

Step 3 – Letter Before Action with Act referenced If they still don't pay, send a Letter Before Action:

• The debt, interest, fixed sums, and how it was calculated.
• A clear deadline (typically 14 days).
• A line saying you'll issue proceedings and seek all these sums if they don't pay.

Smart play: You don't have to insist on every penny of interest and fixed fees. Often you show the full amount but offer to accept just the principal (or principal + part of interest) if they pay quickly.

Once a client realises the longer they drag it out, the more it costs them, they suddenly find the money.

5. GOTCHAS AND WHEN TO GET HELP

A few things to watch:

Check your contract first If you've agreed a decent late-payment remedy (for example, a proper contractual interest clause and costs), you may have "contracted out" of the Act and can't layer it on top. A solicitor can review your terms and tell you which route is better.

Make sure it's a business, not a consumer The Act is for commercial debts only – if you're working for a private householder as a consumer, this doesn't apply.

Calculating interest correctly is fiddly Strictly, you should use the "reference rate" model (rate as at 31 Dec / 30 Jun for the next 6 months). For big sums/long delays, get an accountant or solicitor to check you've got the math right before you go to court.

You don't need to shout about the Act on every quote. The power is in being able to say, calmly, "under UK late payment law, this is now attracting 8% over base plus fixed charges – here's the figure", and then escalating if they still muck you about.

This page is guidance only and does not constitute legal advice. Using it does not make us your legal adviser. Always get advice from a qualified solicitor or accountant before starting formal debt recovery or relying on statutory interest in a dispute.

What to do next

• Check your contract · if it already has a fair late-payment interest clause, you may be stuck with that rate instead of the statutory 8% + base.
• Calculate the total owed using the Small Business Commissioner's free interest calculator: principal, statutory interest, and fixed compensation per invoice.
• Start with a normal chaser a few days after the due date, then escalate to a "Late Payment Act" chaser showing the full interest and charges.
• If they still don't pay, send a Letter Before Action with the debt, interest, fixed sums, and a 14-day deadline.
• Use the interest as leverage: offer to waive part of it if they pay the principal quickly.

Sources

• Late Payment of Commercial Debts (Interest) Act 1998 · statutory interest at 8% above base rate, fixed compensation, and recovery costs
• Late Payment of Commercial Debts Regulations 2013 · updated rules on maximum payment terms and recovery costs
• Small Business Commissioner guidance on late payment · free calculator and advice on using the Act

Common questions

Can I charge interest on unpaid invoices?

Yes. On overdue B2B invoices you can charge 8% above the Bank of England base rate plus a fixed compensation fee. The fee is £40 to £100 depending on invoice size, set by the Late Payment of Commercial Debts Act. It applies automatically, even without a contract clause. It does not apply to consumer customers.

Late Payment Calculator.

This topic is sponsored by The Online Accountant.

www.theonlineaccountant.com/?utm_source=sitekiln&utm_medium=sponsor&utm_campaign=payment-section →

SiteKiln's editorial team writes every guide independently. Sponsors do not review, edit or sign off on content. See our editorial standards.

Spotted something wrong or out of date? Email us at hello@kilnguides.co.uk.

In crisis? Samaritans 116 123 · Mental health support