Late payment: what UK law actually lets you charge on an overdue invoice

The right most small businesses don't know they have

The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses supplying goods or services to other businesses (B2C consumer sales are excluded) an automatic statutory right to charge interest and a fixed compensation sum on a late-paid invoice — whether or not your contract or terms of business mention it. It exists specifically because smaller suppliers have historically had little practical leverage to negotiate late-payment terms with larger customers, so the law sets a floor that applies regardless of what was agreed (unless the parties have agreed a "substantial remedy" that isn't grossly unfair to the supplier, which most ordinary payment terms don't override).

When payment counts as "late"

The default payment term, where no date is agreed, is 30 days after the later of: the invoice date, or the goods/services being received. Where a contract specifies a longer payment term, that agreed date applies instead — but for contracts with public sector bodies specifically, terms are capped at 30 days, and for business-to-business contracts, an agreed term longer than 60 days must not be grossly unfair to the supplier to be enforceable. The moment the agreed (or default 30-day) date passes without payment, statutory interest starts accruing automatically — you don't need to send a warning or a formal demand first for the right to exist, though in practice most businesses do chase informally before relying on the statutory route.

What you can actually charge

Two separate entitlements apply, and most businesses that do know about statutory interest still miss the second, more valuable one:

• Statutory interest — currently the Bank of England base rate plus 8%, calculated daily on the outstanding amount from the day after the payment became due until the date of payment. Because it's base rate plus a fixed margin, the exact rate moves when the Bank of England changes the base rate — worth checking the current rate rather than assuming last year's figure.
• Fixed compensation for debt recovery costs — a flat sum per invoice, banded by the size of the debt, payable in addition to interest and without needing to prove you actually incurred that level of recovery cost:

If your reasonable actual costs of recovering the debt exceed the fixed compensation figure, you can claim the difference as well — the fixed sum is a floor, not a cap. On a genuinely large or old debt, statutory interest can add up to a meaningful sum quickly: a £10,000 invoice paid 90 days late at, for illustration, an 8.75% combined rate accrues roughly £215 in interest alone, plus the £100 fixed compensation — not trivial, and often more than the "we'll just let it go" instinct assumes.

Calculating what's owed

The calculation is straightforward once the dates are clear: (outstanding amount × annual rate ÷ 365) × number of days late, plus the fixed compensation band for that invoice. The two things that most often get miscounted:

• The start date — interest runs from the day after the due date, not the due date itself, and not from the invoice date if a longer term was agreed.
• Partial payments — if a customer pays part of an invoice late, interest and compensation still apply to the portion that was genuinely overdue for the period it remained unpaid, not simply waived because some money eventually arrived.

For a business chasing several overdue invoices from different customers at once, this is exactly the kind of calculation that's easy to get wrong by hand and easy to under-claim by simply not doing — which is the real-world outcome for the large majority of eligible small businesses.

Using it without wrecking the relationship

Statutory interest is a legal entitlement, not an obligation to enforce it aggressively on every late payment from every client — and most businesses sensibly reserve it for genuinely problematic payers rather than a client who's a week late once. A workable approach:

• Chase informally first for a first, minor lateness — a friendly reminder resolves most cases without needing the statutory mechanism at all.
• State your right to statutory interest in your terms of business even though it applies automatically — making it visible upfront changes payer behaviour more than invoking it after the fact.
• Escalate to invoking it formally for repeat late payers, or invoices seriously overdue, where the relationship is already under strain and a soft reminder clearly isn't working.
• Keep the calculation ready, not just the threat — a supplier who can immediately produce the exact interest and compensation figure looks like they know their rights and expect to be paid on time; a vague threat to "add interest" without a number attached rarely gets taken seriously.

The practical prerequisite for any of this is simply knowing, at a glance, which invoices are overdue and by how many days — the input the whole calculation runs from. InvoiceIQ's aging view (1–30 / 31–60 / 61–90 / 90+ days) keeps that visible without a manual spreadsheet reconciliation, which is usually the actual reason statutory interest goes unclaimed — not that businesses don't know the right exists, but that nobody's tracking exactly how overdue each invoice is.

Common mistakes

1. Assuming statutory interest only applies if your terms of business mention it — it applies automatically to B2B contracts by default.
2. Forgetting the fixed compensation sum entirely, which is often worth claiming even when the interest itself is modest.
3. Miscounting the start date — interest runs from the day after the due date, not the invoice date (unless no term was agreed, in which case the default 30-day rule applies).
4. Not reserving statutory interest for genuinely problematic payers, damaging an otherwise good relationship over a one-off minor delay.
5. Losing track of exactly how overdue an invoice is, so the interest calculation (and the will to chase it) never actually happens.

This guide is general information, not legal, tax or compliance advice. Rules change — always check the current official guidance for your situation.