UK late payment interest explained
UK law gives suppliers a right to interest and compensation on late business invoices. Here is how it works and how to calculate it.
Who it applies to
The Late Payment of Commercial Debts (Interest) Act 1998 covers contracts for goods or services between businesses, including sole traders and the public sector. It does not cover sales to consumers.
If you agreed a payment date, interest runs from the day after it. If no date was agreed, the default is 30 days after the later of the invoice or the delivery of the goods.
How much interest
Statutory interest is 8% a year above the Bank of England base rate. The base rate you use is fixed for each half-year: the rate on 31 December applies to debts that become late between January and June, and the rate on 30 June applies to debts that become late between July and December.
Interest is simple, not compound, and is worked out daily: debt × (8% + reference rate) ÷ 365 × days late.
Fixed compensation
On top of interest, you can claim a fixed sum per invoice for the cost of recovering the debt.
| Invoice amount | Fixed sum |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
You may also claim reasonable recovery costs above the fixed sum where you can show them.
Worked example
A £6,000 invoice is paid 45 days late, and the reference base rate for that half-year is 4%. Interest is £6,000 × 12% ÷ 365 × 45 = £88.77. Fixed compensation for an invoice of that size is £70. The buyer owes £6,158.77.
The base rate here is only for illustration. Check the Bank of England rate for the relevant date, or let Terms Due apply it for you.
Before you claim
Your contract can set a different remedy for late payment, as long as it is substantial. Mention statutory interest in your trade terms so buyers are not surprised, and take advice before pursuing a disputed debt. This guide is general information, not legal advice.
Questions
Can I claim late payment interest if my terms do not mention it?
Yes. The right comes from the Act, not your contract, although stating it in your terms is good practice.
Is the compensation per invoice or per customer?
Per invoice.
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