charging interest on late payments uk
Late Payment Interest: How to Charge It on Unpaid Invoices
If a business customer pays you late, the law is on your side: the Late Payment of Commercial Debts (Interest) Act 1998 entitles you to interest at 8% plus the Bank of England base rate, plus fixed compensation of £40 to £100 per invoice - no contract clause needed. One thing first: this applies to business customers only. For homeowners you need your own terms to say so.
Who you can charge
Step 1: Check the invoice qualifies - business customers only
The Act covers business-to-business debts: main contractors, developers, letting agents, shops, a landlord running a property business. It does not cover domestic consumers - you cannot charge a homeowner statutory interest under this Act. For domestic work, the only route is a contractual interest clause in your quote terms, agreed before the job starts. If your terms are silent, you have no interest claim against a consumer - which is a good reason to fix your terms today.
Working out what you are owed
Step 2: Find the current base rate
Statutory interest is 8% plus the Bank of England base rate. Check the current rate on the Bank of England website when you calculate - it moves, and quoting a stale rate gives the debtor an easy nitpick.
Step 3: Work out the daily interest
Worked example: a £5,000 invoice, with the base rate at (say) 4%, accrues interest at 12% a year - £5,000 × 0.12 ÷ 365 = £1.64 a day. Thirty days overdue is about £49. Count from the day after the due date on your invoice (or, with no agreed terms, after the statutory default period - typically 30 days from invoice/delivery).
Step 4: Add the fixed compensation
This is the part most trades miss - a fixed sum per late invoice, claimable even when the interest is pennies:
- £40 - debt under £1,000
- £70 - debt from £1,000 to £9,999.99
- £100 - debt of £10,000 or more
- Plus reasonable recovery costs on top, if chasing costs you more
Making the demand
Step 5: Send a letter setting out the figures
Dear [Name], Re: Invoice [number] - £[amount], due [due date] This invoice is now [X] days overdue. Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory interest and compensation now apply: Invoice amount: £[amount] Statutory interest (8% + [base rate]% = [total]% per year, [X] days): £[interest] Fixed compensation under the Act: £[40/70/100] Total now due: £[new total] Interest continues to accrue at £[daily amount] per day until payment. Please pay the total above within 7 days to: [Account name] - Sort: [00-00-00] - Acc: [00000000] If payment is not received, I will pursue the debt, interest and costs through the courts without further notice. [Your name], [Business name]
Precision is the weapon here. A letter that names the Act, shows the daily rate and states the accruing total reads like the first page of a court bundle - because it is. Most debtors settle at this point rather than let £1.64 a day tick upwards on paper.
From the tools: My brother, a spark in Leeds, waited eleven weeks on a £3,600 invoice from a main contractor who answered every call with "it's with accounts". A plumber on the same site showed him the statutory route. His letter set out 77 days of interest at 8% plus base - around £91 at the time - plus the £70 fixed compensation, total just under £3,761, accruing daily, Act cited by name. The transfer landed six days later, compensation included. The £70 didn't change his month; watching a professional demand outperform three months of polite phone calls changed how he chases every commercial invoice since. He now states the Act in his payment terms up front.
Step 6: Keep the interest running until they pay
Interest accrues daily until the money lands, so each follow-up restates the higher total. Still nothing? The same figures drop straight into a letter before action and then a small claims filing - you've already done the arithmetic a judge would ask for. Debts under £10,000 through the small claims route need no solicitor.
Should you always charge it?
It's a right, not an obligation - you can invoice the interest and compensation or quietly waive it for a good customer having a bad month. The useful middle ground: put the figures in your reminder letters so the debtor knows the meter is running, then decide whether to collect once they pay. A contractor who strings out every invoice deserves the full statutory treatment; a loyal client who slipped once probably deserves a phone call first. Either way, know the numbers - a right you can't calculate is a right you don't really have.
This is general information for UK tradespeople, not tax or legal advice. Rules change - check GOV.UK or a qualified accountant for your situation.
Quotato chases unpaid invoices for you automatically - most never get this far.
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