The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses a statutory right to interest and compensation when another business pays late. You do not need a clause in your contract to rely on it, and you do not need to go to court to add it to a demand.
Who it applies to
The Act covers contracts for the supply of goods or services where both sides are acting in the course of a business. That includes limited companies, sole traders and partnerships. It does not apply to consumer sales, and it does not apply where your contract already provides a “substantial remedy” for late payment, such as its own interest rate.
If your terms say nothing about late payment, the statutory terms are implied into the contract automatically.
When an invoice counts as late
Interest starts to run the day after the agreed payment date. If no date was agreed, the law sets a default period of 30 days from the later of the invoice date and the date the goods or services were delivered. Businesses can agree longer terms, usually up to 60 days, provided the terms are not grossly unfair to the supplier.
Keep the invoice date, the delivery date and the agreed terms together. They decide when the clock starts, and a recovery partner will ask for them.
The statutory rate
Statutory interest is 8% a year above the Bank of England base rate. The base rate used is the one in force on the “reference date”: 31 December for invoices that become late between 1 January and 30 June, and 30 June for invoices that become late between 1 July and 31 December. The rate is then fixed for that six-month period rather than moving with every base rate change.
Interest is simple, not compound, and is calculated daily on the amount outstanding.
Fixed compensation, per invoice
Alongside interest, you can claim a fixed sum towards the cost of recovering the debt. It is set by the size of the debt and is charged per invoice, so three late invoices mean three fixed sums.
| Amount of the debt | Fixed sum you can claim |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Where your reasonable recovery costs are higher than the fixed sum, the Act also allows you to claim the difference. Keep evidence of what the chasing has actually cost you.
A worked example
The invoice: £5,000, agreed terms 30 days, now 60 days past the due date.
The rate: if the base rate on the reference date were 4%, statutory interest would run at 12% a year.
The interest: £5,000 × 12% ÷ 365 × 60 days = £98.63.
The compensation: £70, because the debt is between £1,000 and £9,999.99.
The total you can add: £168.63, and it keeps growing by about £1.64 a day until the invoice is paid.
Check the current base rate on the Bank of England website before you calculate, and use the rate from the correct reference date rather than today’s rate.
Using it in practice
- Say so on your terms. A line stating that you will claim statutory interest and compensation on late payment sets expectations, even though the right exists without it.
- Add it to a formal demand. A letter before action that sets out the invoice, the interest to date and the fixed sum shows the debtor exactly what delay is costing them.
- Decide what matters. Some businesses waive the interest to close a settlement quickly or protect a relationship. That is a commercial choice, and it is yours to make.
- Tell the partner. If you make an enquiry with us, mention any interest and compensation you want included. The independent partner can explain how it fits with their approach.
Owed money by a limited company?
Tell us the invoice details and we’ll consider whether an introduction to an independent recovery partner is appropriate. Free, with no obligation to proceed.
Start your enquiryThis post provides general information about the position in the UK, not legal advice. Rates and rules change, so check current figures before relying on them. No Win No Fee Services makes introductions; independent partners assess and provide recovery services.
