Who can claim late payment interest in the UK?
You can claim late payment interest on business-to-business (B2B) commercial debts under the Late Payment of Commercial Debts (Interest) Act 1998. The right applies automatically whenever one business supplies goods or services to another and the customer pays late. You do not need a clause in your contract for it to apply.
It does not cover:
- Sales to private consumers (you can only charge a consumer interest if your contract says so).
- Debts already covered by other specific late-payment legislation.
A debt becomes "late" when payment passes the agreed date. If you never agreed a payment date, the statutory default is 30 days from the later of the date you delivered the goods/services or the date the customer received your invoice. Setting clear terms upfront removes any argument about when the clock starts, which is one reason it pays to issue a clean, dated invoice every time with the invoice editor.
What is the statutory late payment interest rate?
The statutory interest rate is the Bank of England base rate plus 8%. So if the base rate is 4.5%, statutory interest runs at 12.5% per year. You can calculate it for your own invoice in seconds with our free calculator — no account needed.
The base rate used isn't whatever today's rate happens to be. It is fixed on one of two reference dates:
| When the debt becomes overdue | Base rate you use |
|---|---|
| 1 July to 31 December | The base rate in force on 30 June that year |
| 1 January to 30 June | The base rate in force on 31 December of the previous year |
Once that reference rate is fixed, it applies for the whole period the debt stays unpaid, even if the Bank of England changes the base rate in the meantime. Always check the live Bank of England base rate before you calculate, because the figure moves and the rate you need is the one set on the relevant reference date.
The 12.5% figure used in the examples below assumes a 4.5% base rate. As of the publish date this was the working assumption — check the live rate for your own reference date before relying on a number.
How do you calculate the daily interest?
Statutory interest is simple (not compound) interest. The formula is:
Daily interest = (debt × annual statutory rate) ÷ 365
Then multiply by the number of days the debt is overdue.
Take a £1,000 invoice that is 45 days late, with statutory interest at 12.5%:
- Annual interest: £1,000 × 12.5% = £125
- Daily interest: £125 ÷ 365 = £0.342
- 45 days overdue: £0.342 × 45 = £15.41
You count from the day after payment was due up to (and including) the day you're paid or the day you issue the claim.
How much fixed compensation can you add?
On top of interest, the Act lets you claim a fixed sum of compensation for each overdue invoice, set by the value of the debt:
| Size of the debt | Fixed compensation |
|---|---|
| Less than £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
This compensation is per qualifying debt, so each late invoice attracts its own fixed sum. For the £1,000 invoice above, that's £70 on top of the £15.41 interest:
| Item | Amount |
|---|---|
| Original invoice | £1,000.00 |
| Statutory interest (45 days @ 12.5%) | £15.41 |
| Fixed compensation (£1,000–£9,999.99 band) | £70.00 |
| Total now due | £1,085.41 |
A multi-invoice worked example
Where a customer owes you on several overdue invoices, you calculate interest and compensation on each one separately, then add them up. Say a customer has three invoices outstanding, all at the same 12.5% statutory rate:
| Invoice | Amount | Days late | Interest | Compensation band | Compensation |
|---|---|---|---|---|---|
| INV-101 | £600.00 | 60 | £12.33 | Under £1,000 | £40.00 |
| INV-102 | £4,500.00 | 30 | £46.23 | £1,000–£9,999.99 | £70.00 |
| INV-103 | £12,000.00 | 90 | £369.86 | £10,000+ | £100.00 |
| Totals | £17,100.00 | £428.42 | £210.00 |
Total owed including the original debts: £17,738.42. The interest figures use (amount × 0.125 ÷ 365 × days), rounded to the nearest penny. The compensation is fixed per invoice based on each invoice's band, which is why three invoices give £40 + £70 + £100 = £210 even though the combined debt is over £17,000.
Can you recover debt-recovery costs too?
Yes. If the fixed compensation doesn't cover your reasonable costs of recovering the debt, the Act lets you claim the additional reasonable costs on top. A common example is the fee you pay a debt-recovery agent or solicitor to chase the money. You can claim the part of those costs that the fixed sum doesn't already cover, provided the costs are reasonable and you can evidence them.
Statutory interest versus contractual interest
You have a choice. You can rely on the statutory rate, or you can set your own interest rate in your contract (this is "contractual interest"). A few points to weigh up:
- If your contract sets a rate, that rate generally applies instead of the statutory one, as long as it provides a "substantial remedy" for late payment. A rate set artificially low to dodge the Act can be struck out, leaving the statutory rate in place.
- You can't use a contract to remove the right to interest altogether for B2B debts.
- Many small businesses simply rely on the statutory rate because it needs no negotiation and is hard for a customer to argue with.
If you do set contractual terms, state them on the invoice and in your terms of business so there's no dispute later.
How to claim, step by step
Statutory interest applies automatically, but you still have to ask for it. A calm, businesslike escalation usually works better than jumping straight to a solicitor:
- Send a polite reminder as soon as the invoice goes overdue. Often payment is just an oversight. Automated payment reminders handle this without you having to remember each due date.
- Send a second, firmer reminder referencing the original due date and your right to statutory interest and compensation under the 1998 Act.
- Issue a formal demand that itemises the debt, the interest accrued to date, the daily rate going forward, and the fixed compensation. Make the numbers easy to check.
- Notify them of next steps (a formal letter before action or debt-recovery referral) if the demand goes unanswered. Knowing the costs of recovery can be added often prompts payment.
- Escalate to a letter before action and, if needed, the small claims process — but only after the earlier steps have failed.
The Invoify late payment interest calculator works out the statutory interest and the right compensation band for any overdue invoice — and can generate a ready-to-send debit note with the amounts pre-filled — so the figures you put in your demand are accurate and defensible. Pairing that with payment tracking means you can see at a glance which invoices have tipped past their due date.
Preventing late payment in the first place
The cheapest interest to chase is the interest you never have to chase. A few habits cut your exposure:
- Agree clear payment terms in writing before you start work, and put them on every invoice.
- Invoice promptly and accurately — late or incorrect invoices give customers an excuse to delay.
- Automate the chase. Scheduled reminders and recurring billing keep cash moving without manual effort. Our guide to recurring invoices covers how to set predictable billing cycles up.
- Track what's outstanding so a debt never quietly drifts months past due before you notice.
Late payment interest is a legal right, not a favour you're asking for. Used sensibly, it's also a strong nudge: a customer who knows the interest clock is running tends to pay sooner.
Invoify calculates statutory interest and the correct compensation band automatically on any overdue invoice — try the free late payment calculator, see how Invoify tracks this automatically, or compare plans on pricing.