What is the Late Payment of Commercial Debts Act?
The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business an automatic right to charge interest and a fixed sum in compensation when another business pays an invoice late. It was introduced because small suppliers were routinely being used as free credit by larger customers, and had no practical way to push back. The Act shifts the cost of that delay onto the party causing it.
The right is automatic. You don't need a clause in your contract, you don't need to have warned the customer in advance, and you don't need to send anything special to trigger it. From the day after payment was due, interest starts to run — whether or not you ever mention it. Choosing not to chase it is a commercial decision, not a legal bar.
Who it applies to
The Act covers commercial debts only — that is, contracts for goods or services where both the supplier and the customer are acting in the course of a business. That includes:
- Freelancers and sole traders invoicing business clients
- Limited companies invoicing other companies
- Suppliers invoicing the public sector, including councils, the NHS and government departments
It does not cover consumer debts. If you invoiced a private individual for something they bought for personal use, the Act gives you nothing — you would be relying on your contract terms or, if you end up in court, on the court's general discretion to award interest instead.
How statutory interest works
The statutory rate is the Bank of England base rate plus 8 percentage points. With the base rate at 3.75% (set on 29 July 2026), the current statutory rate is 11.75%. That 8-point margin is deliberately punchy: it is meant to be more expensive than the customer's own borrowing, so paying you on time is the cheaper option.
Interest is simple, not compound, and accrues daily on the outstanding amount:
total interest = daily interest × days overdue
The clock starts the day after payment was due and runs until the invoice is paid in full. Where you agreed payment terms, the due date is whatever you agreed. Where you didn't agree anything, the debt becomes due 30 days after the later of the invoice arriving and the goods or services being delivered.
One nuance worth knowing: the Act fixes the rate twice a year rather than tracking the base rate continuously. The rate in force on 31 December applies to debts that become overdue in the following January to June, and the rate in force on 30 June applies to debts becoming overdue between July and December. So a long-overdue invoice keeps the rate it started with, even if the Bank of England has since moved.
Fixed compensation
On top of the interest, you can charge a fixed sum for each late invoice, to cover the administrative cost of chasing it. The amount depends on the size of the debt:
- Under £1,000: £40
- £1,000 to £9,999.99: £70
- £10,000 or more: £100
This is per invoice, not per customer — five late invoices of £500 each carry £200 of compensation between them, not £40. And if your reasonable costs of recovering the debt exceed the fixed sum, you can claim those actual costs instead: a debt collection agency's fee or a solicitor's letter, for example, rather than the £40.
Worked examples
Example 1: a £2,000 invoice, 45 days late
Daily interest is (£2,000 × 11.75%) ÷ 365 = £0.64.
45 days × £0.64 = £28.97 interest, plus £70 compensation = £98.97 on top of the £2,000.
Example 2: a £15,000 invoice, 6 months late
Daily interest is (£15,000 × 11.75%) ÷ 365 = £4.83.
183 days × £4.83 = £883.66 interest, plus £100 compensation = £983.66 on top of the £15,000.
Example 3: three small invoices from the same client
Three invoices of £800, each 60 days overdue. Interest on each is (£800 × 11.75%) ÷ 365 × 60 = £15.45.
£46.35 interest in total, plus £40 compensation per invoice = £166.35 on top of the £2,400.
How to actually claim it
In most cases, you simply tell the customer. A short, factual email that states the invoice, how many days overdue it is, the interest and compensation that have accrued, and a date by which you expect payment, is usually enough — the calculator above will generate one for you. Being specific about the figures signals that you know where you stand, which is often what actually moves the payment.
If that doesn't work, the next step is a formal letter before action, then a claim through the county court or Money Claim Online. You have six years from the date the debt fell due to bring a claim in England, Wales and Northern Ireland, and five years in Scotland.
Frequently asked questions
Does this apply to invoices sent to individuals?
No. The Late Payment of Commercial Debts (Interest) Act 1998 only covers commercial debts — business to business, or business to public sector. If your customer is a private individual buying for themselves rather than for a business, the Act doesn't apply and you can't claim statutory interest or the fixed compensation. A sole trader or someone operating as a business is still a business for these purposes, so an invoice to a self-employed plumber for work on their van is covered, while the same invoice to them as a homeowner is not.
What if my contract says something different about late payment?
A contractual interest rate takes priority, provided it's a 'substantial remedy' for late payment and both parties genuinely agreed it in writing. If your contract sets a higher rate, use that instead — this calculator gives you the statutory floor, not a ceiling. What a contract cannot do is take the protection away: a clause setting a token rate, or excluding late payment interest altogether, can be struck out by a court, and the statutory rate applies in its place.
Do I have to go to court to claim statutory interest?
No. The entitlement is automatic — it arises the day after payment falls due, whether or not you mention it. Most freelancers and small businesses simply add the interest and compensation to a chasing email or a final statement, and are paid without any court involvement. Court is a last resort. If it does come to that, you can use the Money Claim Online service for straightforward debts, and the interest and compensation can be claimed alongside the invoice itself.
What if the debtor is insolvent?
If the business goes into administration or liquidation, you become an unsecured creditor and join the queue behind secured lenders, employees and HMRC preferential claims. Your statutory interest and compensation form part of the claim you submit to the insolvency practitioner, but unsecured creditors often recover only a fraction of what they're owed, and sometimes nothing. If you suspect a customer is in trouble, act quickly — check their status on Companies House, and get advice before writing off the debt.
Can I still claim interest on an invoice that has already been paid?
Yes. If the invoice was settled late, the interest that accrued during the period it was overdue is still owed to you, along with the fixed compensation. In practice, many suppliers choose not to pursue this on an invoice that's now settled, particularly with a customer they want to keep — but the legal entitlement doesn't disappear just because the principal has been paid.
How far back can I claim for old unpaid invoices?
You generally have six years from the date the debt fell due to bring a claim in England, Wales and Northern Ireland. In Scotland the period is five years, under the rules on prescription. Once that window closes, the debt becomes unenforceable through the courts, so it's worth keeping track of your oldest outstanding invoices rather than letting them drift.
Will claiming interest damage the client relationship?
That's a judgement call only you can make, but the entitlement gives you room to negotiate. Many businesses raise the statutory position and then waive the interest as a goodwill gesture once the invoice itself is paid — which gets the money in without souring things. Simply knowing the figure, and being able to state it accurately, tends to move a stalled payment along.
This calculator provides an estimate based on the statutory minimum under the Late Payment of Commercial Debts (Interest) Act 1998, using a Bank of England base rate of 3.75%. It is for general information only and is not legal advice. For your specific situation, check the guidance on GOV.UK or take professional advice.