Chasing unpaid invoices is one of the most frustrating parts of running a small business. But many UK business owners don't realise they have a legal right to charge interest and claim compensation on late payments — automatically, even without a contract clause.
Here's everything you need to know about late payment interest in the UK, and how to calculate exactly what you're owed.
Your Legal Right to Charge Interest
Under the Late Payment of Commercial Debts (Interest) Act 1998, any business supplying goods or services to another business on credit terms can charge statutory interest when payment is late.
This applies to:
- Sole traders
- Partnerships
- Limited companies
- LLPs
It covers B2B transactions only — you can't charge statutory interest to individual consumers.
What's the Statutory Interest Rate?
The statutory rate is the Bank of England base rate plus 8%.
As of early 2026, with the base rate at 4.5%, that means:
Statutory interest rate = 4.5% + 8% = 12.5% per annum
Interest starts accruing from the day after the agreed payment date (or 30 days after delivery of goods/services if no date was agreed).
Fixed Compensation for Debt Recovery
On top of interest, you can claim a fixed compensation amount for the cost of chasing payment:
| Debt amount | Compensation | |---|---| | Up to £999.99 | £40 | | £1,000 to £9,999.99 | £70 | | £10,000 or more | £100 |
This is per invoice, and it's yours to claim regardless of your actual recovery costs. If your real costs are higher than the fixed amount, you can claim reasonable costs instead — but the fixed amount is the minimum.
How to Calculate Late Payment Interest
The formula is straightforward:
Daily interest = (Invoice amount × annual interest rate) ÷ 365
For example, a £5,000 invoice that's 45 days overdue at 12.5%:
- Daily interest: £5,000 × 0.125 ÷ 365 = £1.71 per day
- Total interest for 45 days: £1.71 × 45 = £76.99
- Plus fixed compensation: £70
- Total you can claim: £146.99
That's money you're legally entitled to — and it adds up quickly across multiple late invoices.
When Does the Clock Start?
If your contract specifies payment terms (e.g., "payment due within 30 days"), interest accrues from the day after that deadline.
If there's no agreed payment date, the law assumes:
- 30 days after the customer receives the invoice, or
- 30 days after delivery of the goods or services (whichever is later)
For public sector contracts, the default is also 30 days, and they cannot contractually extend this beyond 30 days.
Should You Actually Charge It?
This is where it gets practical. You have the right, but should you exercise it?
Yes, if:
- The customer is a repeat late payer
- The amount is significant
- The relationship is already strained or ending
- You need the cash flow
Consider carefully if:
- It's a first offence from a good client
- The delay was short and communication was good
- The relationship matters more than the interest amount
Many businesses find that simply mentioning statutory interest on their invoices and reminders is enough to improve payment behaviour — without ever actually charging it.
How to Add Late Payment Terms to Your Invoices
Include a line like this on every invoice:
"Under the Late Payment of Commercial Debts (Interest) Act 1998, we reserve the right to charge statutory interest of 8% above the Bank of England base rate, plus fixed compensation of £40–£100 per invoice, on overdue payments."
This isn't legally required (you have the right regardless), but it serves as a clear reminder and sets expectations.
Calculate Your Late Payment Interest Instantly
Rather than doing the maths by hand, use our free Late Payment Interest Calculator to work out exactly what you're owed. Just enter the invoice amount, due date, and payment date — it handles the rest, including the correct Bank of England base rate and fixed compensation.
Other Free Tools for UK Businesses
Managing finances shouldn't mean paying for a dozen different tools. We build free calculators and utilities for UK accountants, bookkeepers, and small business owners:
- VAT Calculator — Add or remove VAT at any rate
- HMRC Mileage Calculator — Calculate business mileage claims
- CIS Tax Calculator — Work out CIS deductions instantly
- Invoice Generator — Create professional invoices in seconds
- AI Invoice Importer — Extract invoice data with AI and push to Xero automatically
Need to automate your invoice processing? Our AI Invoice Importer reads invoices, extracts the data, and pushes it straight into Xero — no manual entry required.