Late Payment: A Business’s Right to Interest and Compensation

Who should read this

• Freelancers, sole traders and companies with overdue business invoices.
• Anyone preparing a letter before action for a business debt.

What the law says

• The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts between businesses, and between a business and a public authority. It does not apply to sales to consumers.
• Statutory interest is 8% a year above the Bank of England base rate.
• You can also claim fixed compensation for each late invoice: £40 for a debt under £1,000, £70 for a debt of £1,000 to £9,999.99, and £100 for a debt of £10,000 or more.
• If no payment date was agreed, payment is generally late after 30 days from the later of delivery or the invoice.
• A contract can set its own rate of late-payment interest instead, provided it gives a substantial remedy.

Steps

1. Check when payment became late — Use the agreed payment date, or the 30-day default.
2. Work out the interest — Apply 8% plus the base rate to the overdue amount for each day it is late.
3. Add the fixed compensation — One fixed sum per late invoice, according to its size.
4. Tell the customer — Send a reminder, then a letter before action, saying you will claim interest and compensation.
5. Claim if unpaid — Include the interest and compensation in your court claim.

Documents you'll need

• The contract or order and your invoice.
• Proof of delivery or completed work.
• Your interest calculation.

Fees

• Nothing to claim the interest itself; court fees apply only if you sue.

Timeline

Interest runs daily from the day after payment was due until the debt is paid.

Common mistakes

• Claiming statutory interest from a consumer — the Act covers business debts only.
• Forgetting the fixed compensation, which is due in addition to interest.
• Not stating in your letter before action that you will claim them.

Questions

Do I need a late-payment clause in my contract?

No. The right to statutory interest and compensation is implied into business contracts by the Act.

Can I claim more than the fixed compensation?

If your reasonable costs of recovering the debt are higher than the fixed sum, you can claim the difference.

When to consult a lawyer

• The debt is large or disputed.
• Your customer’s contract terms try to exclude or reduce your late-payment rights.

Related

• Create a final payment reminder →
• Create a letter before action →
• Recovering money you are owed →
• Find a solicitor or barrister →