Late Payment Interest And Compensation: What Can You Claim On An Overdue Invoice?

When a customer pays late, most businesses chase the amount on the invoice and nothing else. But UK law gives you the right to claim more than the invoice itself, and a lot of businesses never use it.

In short: under the Late Payment of Commercial Debts (Interest) Act 1998, a business that is paid late by another business can generally claim three things on top of the original invoice: statutory interest at 8% above the Bank of England base rate, fixed compensation of £40, £70 or £100 per invoice depending on its size, and reasonable recovery costs where those exceed the fixed amount.

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What The Late Payment Act Covers

The Act applies to contracts between businesses, and between public authorities and businesses, for the supply of goods or services. It doesn't cover payments owed by consumers.

The rights apply by default. You don't need to have included them in your terms and conditions, although the parties generally can't contract out of them unless the contract provides its own substantial remedy for late payment.

1. Statutory Interest

Interest is charged at 8% above the Bank of England base rate. It's simple rather than compound, which means it isn't charged on interest already accrued, and it builds up daily from the date payment was due until the invoice is paid. The base rate used is the one in force at set points in the year, so it's worth checking the current reference rate before calculating a claim.

The calculation is: invoice amount × (8% + base rate) ÷ 365 × number of days late.

2. Fixed Compensation

On top of interest, you can claim a fixed sum for each overdue invoice, based on its size:

• £40 for debts under £1,000

• £70 for debts from £1,000 to £9,999.99

• £100 for debts of £10,000 or more

This is claimed per invoice, not per customer. A customer with five overdue invoices can mean five separate compensation sums.

3. Reasonable Recovery Costs

Where the reasonable costs of recovering a debt are higher than the fixed compensation, you can generally claim the difference as well. This applies to contracts made since March 2013. The costs need to be reasonable, and they can include things like professional recovery or credit control fees.

This is the part many businesses don't realise. Chasing a debt costs time and money, and the law allows some of that cost to be passed to the late payer rather than absorbed by you.

A Worked Example

The following is purely for illustration, assuming a combined interest rate of 12%. The real rate depends on the Bank of England base rate at the time.

A £10,000 invoice paid 60 days late would accrue about £197.26 in interest (£10,000 × 12% ÷ 365 × 60). Add £100 in fixed compensation and the debtor owes roughly £297.26 on top of the original £10,000, before any further recovery costs.

When You Might Not Be Able To Claim

Entitlement depends on the facts. A genuine dispute over whether the money is actually due can affect your right to interest and compensation until the dispute is resolved. A contract that already provides a substantial remedy for late payment can also change the position.

It's sensible to make your intention clear. Including late payment terms on your invoices, and telling a customer in writing that you intend to claim interest, avoids arguments later.

What's Changing

The Small Business Protections Bill (also known as the Commercial Payments Bill) proposes mandatory statutory interest on late payments with no opt-out, alongside a 60-day payment cap. It is still progressing through Parliament and isn't law yet, so the current rules above still apply.

Don't Leave It On The Table

A lot of overdue invoices are written off or left to drift, and the interest and compensation that could have been claimed go with them. If you have overdue invoices that a customer isn't responding to, specialist commercial debt recovery can help you pursue what you're owed, including interest and costs where they're due.

This article provides general information only and isn't legal advice.

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FAQs

Can I charge interest on a late invoice automatically?

For qualifying business-to-business debts, the right to statutory interest applies by default, and you don't need a contract term for it. It's still sensible to state it on your invoices and tell the customer in writing that you're claiming it.

How is statutory interest calculated?

At 8% above the Bank of England base rate, as simple interest, accruing daily from the date payment was due. The formula is invoice amount × (8% + base rate) ÷ 365 × days late.

How much compensation can I claim per invoice?

£40 for debts under £1,000, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more, per overdue invoice.

Can I also claim the cost of chasing the debt?

Where your reasonable recovery costs are higher than the fixed compensation, you can generally claim the difference.

Does this apply to consumers?

No. The Act covers contracts between businesses, and between public authorities and businesses, for goods or services.