The Late Payment of Commercial Debts (Interest) Act 1998
The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses the legal right to charge interest on overdue invoices. It applies automatically — you do not need to register or apply for anything. If another business owes you money and has not paid on time, you can charge interest from the day after the due date.
This law was introduced to protect small businesses from large companies using them as an unofficial source of free credit by systematically paying late.
Current Late Payment Interest Rate
The statutory interest rate is the Bank of England base rate plus 8%.
As of June 2026, with the Bank of England base rate at 4.25%, the statutory late payment interest rate is 12.25% per annum.
This rate is reviewed twice yearly (1 January and 1 July). Check gov.uk for the current rate when calculating a specific claim.
What You Can Claim
In addition to the invoice amount, you are entitled to:
1. Statutory Interest
Interest at the current statutory rate, calculated daily from the due date to the date of payment.
Formula: Invoice amount × (statutory rate ÷ 365) × days overdue
Example: £2,000 invoice, 45 days overdue at 12.25%: £2,000 × (0.1225 ÷ 365) × 45 = £30.21
Use our Late Payment Interest Calculator for instant calculations.
2. Fixed Compensation
A one-time fixed fee per invoice:
| Invoice Amount | Fixed Compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 – £9,999.99 | £70 |
| £10,000 or more | £100 |
This is per invoice, not per debtor. If one client owes you on five separate invoices, you can claim £40–£100 on each.
3. Reasonable Recovery Costs
If your recovery costs exceed the fixed compensation amount, you can also claim reasonable additional recovery costs — for example, solicitor's fees for a formal letter.
Who Can Use the Late Payment Act?
The Act applies to business-to-business (B2B) transactions. Specifically:
- The contract must be for the supply of goods or services
- Both parties must be acting in the course of business
- The contract must not have excluded the right to interest (though "grossly unfair" exclusions can be challenged)
The Act does not apply to:
- Consumer debt (B2C)
- Mortgages and financial services
- Employment contracts
When Does Interest Start Accruing?
Interest begins to accrue the day after the agreed payment due date.
If no payment terms were agreed, the default period is 30 days from:
- The date the invoice was delivered, or
- The date the goods or services were delivered/performed, whichever is later
If the contract specifies payment terms (e.g., 14 days, 60 days), interest begins the day after those terms expire.
How to Claim Late Payment Interest
You do not need to go to court to claim interest. Simply add it to your debt collection correspondence.
Step 1: Calculate the amount Use the statutory formula to calculate interest to the current date (or the date of payment if already paid).
Step 2: Send a formal notice Write to the debtor stating:
- The original invoice number, amount, and due date
- The number of days overdue
- The applicable statutory interest rate
- The interest amount calculated to date
- The fixed compensation fee
- The total amount now owed
- A deadline for payment (typically 7–14 days)
Step 3: If unpaid, proceed to recovery If the client does not pay after a formal notice, you can pursue the debt through the small claims court for amounts under £10,000, or through solicitors for larger amounts. The Act gives you a strong legal basis for your claim.
Can You Waive Your Rights?
You can choose not to claim interest — many businesses prefer to preserve the commercial relationship. However, sending a formal notice citing the Act often results in faster payment without the need to actually pursue the claim.
Contractual Interest vs Statutory Interest
If your contract specifies an interest rate for late payment, that rate applies instead of the statutory rate — unless the contractual rate is lower than the statutory rate, in which case the Act may override it if the lower rate is "grossly unfair."
Many businesses add a clause to their terms: "Interest will be charged at 8% above Bank of England base rate per annum on overdue invoices." This mirrors the statutory rate and makes the contractual and statutory positions identical.
Practical Tips for Using the Late Payment Act
- State your payment terms on every invoice — this sets the clock ticking precisely
- Reference the Act in your terms — "Late payment interest will be charged under the Late Payment of Commercial Debts Act 1998" — this signals you know your rights
- Use formal notice templates — a well-worded letter citing the Act often produces payment faster than a casual email
- Automate reminders — FlashBill can send automatic reminders citing the Act when invoices pass their due date
FlashBill and Late Payment
FlashBill automatically sends overdue payment reminders, including formal Late Payment Act notices with the interest calculated correctly. You can choose the tone per client — friendly, firm, or formal. The system tracks all outstanding invoices and escalates automatically.