How to charge late payment interest on an overdue invoice (UK)

Before publishing. This piece quotes a live figure that re-fixes twice a year. Check it, replace it, delete this block and remove draft: true from the frontmatter. The build fails while a [[NEEDS: marker remains in a published article, so this cannot go out by accident.

• [[NEEDS: verify the Bank of England base rate in force on 30 June 2026 — written here as 3.75%, giving a statutory rate of 11.75%. Source: the MPC decision immediately preceding that date. If it differs, the rate table and both worked examples change, and so do the daily figures quoted in chase-unpaid-invoice-politely-templates.md.]]
• [[NEEDS: confirm the fixed-sum bands are still £40 / £70 / £100. They have not moved since 2013, but the Commercial Payments Bill is live and worth a check.]]

Most UK agencies never claim it. The right is in the Late Payment of Commercial Debts (Interest) Act 1998, it applies automatically to almost every invoice you raise to another business, and it is worth real money on a book of overdue work. It costs nothing to claim and nothing to waive.

This is the whole mechanism: what you are owed, how to work out the number, and how to say it out loud without turning a client into an ex-client.

What the Act actually gives you

Two separate entitlements, on every commercial invoice that goes unpaid past its due date:

1. Statutory interest at 8 percentage points above the Bank of England base rate, accruing daily on the outstanding amount from the day after payment was due until the day it is paid.
2. Fixed sum compensation — a one-off charge per overdue invoice, £40, £70 or £100 depending on the size of the invoice, to cover the cost of having to chase at all.

There is a third, less well known: if your reasonable costs of recovering the debt exceed the fixed sum, you can claim the difference. Instruct a solicitor to send a letter and the fee is claimable over and above the £40 or £70, provided you can evidence it.

None of this requires a clause in your contract. It is the default position in law, and it applies unless the contract provides a substantial remedy of its own — a term that quietly removes your right to interest and puts nothing meaningful in its place is liable to be struck out.

The rate, and the rule nobody reads

The rate is not "base plus 8% as of today". This is the part that gets misquoted most often, and it is worth learning as a mechanism rather than as a number — the mechanism never changes, and the number changes twice a year.

The rate is fixed by reference to the base rate on one of two dates, and once a debt becomes late it keeps that rate for its whole life:

• A debt that becomes late between 1 January and 30 June uses the base rate in force on 31 December immediately before.
• A debt that becomes late between 1 July and 31 December uses the base rate in force on 30 June immediately before.

So there are only ever two live rates at any moment: one for debts that fell late in the first half of the year, one for the second. If the Bank moves the base rate in September, invoices that were already late keep the rate they had. Only invoices falling late from the next reference date use the new one.

To find your own rate, take the base rate in force on whichever reference date applies to your invoice — the Bank publishes every decision and the date it took effect — and add 8. For debts falling late in the second half of 2026 that gives:

The fixed sum, by invoice size

One charge per overdue invoice — not per chase, and not per client:

Ten overdue invoices at £6,000 each is £700 of fixed compensation before a penny of interest. That is the part agencies tend to be surprised by: the fixed sum rewards having many late invoices, which is exactly the shape of an agency's overdue book.

A worked example

An £8,400 invoice, payment due 14 July 2026, actually paid on 6 October 2026. The rate used below is the one running in the second half of 2026; substitute your own and the method is identical.

Step 1 — count the days. Interest runs from the day after the due date. 15 July to 6 October is 84 days.

Step 2 — find the annual interest. The debt became late in the second half of 2026, so the rate is 11.75%.

£8,400 × 11.75% = £987.00 per year

Step 3 — get a daily figure. Keep four decimal places here; rounding to the nearest penny per day drifts by pounds over a long delay.

£987.00 ÷ 365 = £2.7041 per day

Step 4 — multiply by the days late.

£2.7041 × 84 = £227.14

Step 5 — add the fixed sum. £8,400 sits in the middle band, so £70.

£227.14 + £70.00 = £297.14

Nearly three hundred pounds on one mid-sized invoice, eighty-four days late. Run the same arithmetic on a larger one — £24,000, 45 days late — and you get £347.67 of interest plus the £100 fixed sum: £447.67.

The Small Business Commissioner publishes a calculator if you would rather not do this by hand, and it holds the current rate for you.

When the clock starts

Interest runs from the day after payment became due. What "due" means depends on what you agreed:

• You agreed a payment date. That date, and interest runs from the day after it.
• You agreed nothing. The default under the Act is 30 days, counted from the latest of: the date the client received the invoice, the date they received the goods or services, or the date they verified or accepted them. That last limb is the one that catches agencies — a client with a formal sign-off step can push the start of the clock later than you think.
• You agreed a very long period. Business-to-business terms beyond 60 days are only enforceable if they are not grossly unfair to you. Where the buyer is a public authority the ceiling is 30 days.

Worth knowing that the Commercial Payments Bill proposes hardening those ceilings so that terms beyond them are void rather than merely challengeable. Nothing to act on yet, but the direction is one way.

How long you have

Simple contract debts in England and Wales are generally recoverable for six years from the date the debt fell due (five in Scotland). Interest on a late payment from three years ago is still claimable in principle.

In practice, raising three-year-old interest on a client you still work with is a relationship decision, not a legal one. Where it does earn its keep is at the end of a relationship, or on a client who has already stopped paying — at that point the interest is simply part of what you are owed.

How to say it without losing the client

The most common reason agencies do not claim statutory interest is not ignorance. It is that raising it feels aggressive. It does not have to be, because the Act does the work for you — the point is that this is not your policy, it is the law's.

Three rules that make it land as a fact rather than a threat:

Name the legislation, not the penalty. "Late payment interest accrues on this balance under the Late Payment of Commercial Debts (Interest) Act 1998" is a statement about the world. "We will be charging you a late fee" is a statement about you. The first is much harder to take personally, and much harder to argue with.

Itemise it, quietly. Put the accrued figure on the statement as its own line, next to the invoices. Nobody has to read it out. It simply sits there getting larger, which is the entire mechanism.

Signal before you charge. The most effective use of the entitlement is often to mention that it exists while the invoice is only a week or two late — and then not to apply it, because the invoice gets paid. The interest is a lever, and a lever you have described is more useful than a lever you have pulled.

Where it stops being a lever and becomes money is on invoices that have already gone past your normal chase ladder. At that point, add it. You are no longer protecting a relationship that is working.

Where this fits in what to do next

Statutory interest is one tool in a sequence, not a strategy on its own. If the invoice is merely late, this belongs alongside a proper chase. If it is genuinely stuck, it becomes part of the sum you claim in a letter before action, and part of the decision about whether to escalate formally. And the way to need it less often is to fix the payment terms on the invoice itself.

Frequently asked

What is the statutory interest rate on late commercial payments? The base rate on the applicable reference date, plus 8 points. The reference dates are 31 December, for debts falling late the following January to June, and 30 June, for debts falling late the following July to December. The rate is then fixed for the life of that particular debt.

Can I claim interest and the fixed compensation on the same invoice? Yes. They are separate entitlements under the same Act, and if your reasonable recovery costs exceed the fixed sum you can claim the difference too.

Do I need a late payment clause in my contract to charge interest? No. The entitlement applies by default to business-to-business supply contracts. A clause is useful for setting expectations, not for creating the right.

Can I charge interest on an invoice that has now been paid? Yes — the entitlement crystallises when the payment is late, not when you invoice for it, and the debt is generally recoverable for six years.

Does statutory interest apply to consumer clients? No. The Act covers contracts where both parties act in the course of a business.

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This is general information about how the 1998 Act works, not legal advice on your particular contract. If real money turns on the answer, ask a solicitor.