UK Statutory Interest on Overdue Invoices — Late Payment of Commercial Debts Act
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses can charge statutory interest on unpaid B2B invoices. The rate is 8% per annum above the Bank of England base rate — so if the base rate is 4.25%, the total interest rate is 12.25% per year.
Interest accrues daily from the date the debt became overdue (after the 30-day statutory payment period, or from the agreed payment date if stated on the invoice). You can also claim a fixed compensation fee on top of the interest: £40 for debts under £1,000, £70 for £1,000–£9,999, and £100 for £10,000 or more.
The Late Payment of Commercial Debts (Interest) Act 1998 applies to business-to-business (B2B) transactions only. Both the creditor (person owed money) and debtor (person who owes) must be acting in the course of a business. The Act does not apply to:
Sole traders, limited companies, and partnerships all qualify as businesses for the purposes of the Act. So a freelance designer invoicing a company for a website, a supplier invoicing a retailer for stock, or a consultant invoicing a corporate client can all use the Act to claim late payment interest.
If your invoice or contract doesn't specify a payment deadline, the statutory payment period is 30 days from whichever is later of: the date the invoice was received; or the date the goods were delivered or services were completed. Interest starts accruing from day 31.
If a payment deadline is agreed in the contract, interest starts from the day after that agreed date. Contracts can extend the payment period beyond 30 days — up to 60 days for business-to-business contracts — but any agreement that gives more than 60 days must not be "grossly unfair" to the supplier. Contracts that entirely exclude the right to claim interest may be void if they are unfair in this way.
In addition to the interest, the Act gives you a right to a fixed debt recovery fee for each late invoice:
This is per invoice, not per debtor. If a client owes you on 10 separate invoices, you can claim the compensation fee 10 times. If your actual reasonable costs of recovering the debt exceed the fixed fee, you may claim those costs instead — but you must be able to demonstrate and justify them.
You issued an invoice for £8,500 with 30-day payment terms. The client paid 75 days late. The Bank of England base rate is 4.25%.
Use the calculator above to generate this breakdown automatically for any invoice amount and date.
Before taking formal action to recover a debt, you should send a Letter Before Action (LBA) — sometimes called a Letter Before Claim. This is a formal written demand that puts the debtor on notice that you intend to take legal action if the debt is not paid within a specified time (usually 7–14 days). The LBA should state:
Many debtors pay on receipt of a well-drafted LBA — simply because it signals you're serious and are documenting everything for a potential court claim.
If the LBA does not produce payment, you can issue a claim through the Money Claim Online (MCOL) service at moneyclaim.gov.uk. For debts up to £10,000, this is a small claim — a straightforward, relatively inexpensive court process that doesn't require a solicitor. The court fees are scaled from £35 (for claims under £300) to £455 (for £5,000–£10,000 claims).
If the debtor doesn't respond within 14 days, you can apply for a default judgment — an automatic court order in your favour. If they do respond and dispute the debt, the matter will be listed for a hearing. In small claims, each side usually pays their own legal costs regardless of outcome.
For claims over £10,000, the process moves to the fast track or multi-track, which involves more procedure and typically requires legal representation. For B2B invoice disputes, it's usually worth attempting debt recovery services or a specialist solicitor at that level.
Claiming late payment interest is a legal right, but it has practical implications for ongoing business relationships. Many businesses choose not to claim interest on late payments from valuable long-term clients, preferring to preserve the relationship and address payment terms through conversation. That's a commercial decision you have to make.
For new clients, or one-off transactions with no long-term relationship, or where a client has habitually paid late despite reminders, claiming the statutory interest and compensation fee is entirely reasonable and legally unimpeachable. Some businesses include reference to the Act in their standard terms of business to set expectations from the outset.
The best approach to late payment is to reduce its likelihood in the first place. Practical steps include: issuing invoices promptly; stating clear payment terms on every invoice; sending reminders 7 days before the due date and again on the due date; requiring deposits or staged payments for large projects; and using direct debit or standing orders for regular clients. A business that sends invoices promptly, chases professionally, and has clear payment terms in writing is far less likely to face chronic late payment than one that invoices irregularly and follows up inconsistently.
No — the Late Payment of Commercial Debts Act applies to B2B transactions only. For consumer debts, you can only charge interest if you have agreed a specific rate in writing in your contract. Without a contractual interest clause, you cannot add interest to a consumer invoice.
No — the right to charge statutory interest under the Act does not need to be stated on the invoice. It is a legal right that applies automatically to qualifying B2B transactions. However, many businesses do include a note such as "Late payment interest charged at 8% above Bank of England base rate under the Late Payment of Commercial Debts Act 1998" to set expectations.
If a client raises a genuine dispute about the invoice, time may not run for interest until the dispute is resolved (if the dispute is found to be genuine and raised promptly). However, a client cannot simply refuse to pay to avoid interest — a dispute must be substantive. If they dispute part of an invoice, interest can still run on the undisputed portion.
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