Statutory late-payment interest and compensation
If another business pays you late, the law lets you add interest and a fixed compensation sum to the debt. It costs nothing to claim and can speed up payment.
- No security
How it works
The Late Payment of Commercial Debts (Interest) Act 1998 gives you a right to claim interest when another business, or a public authority, pays you late.
- When a payment is late: if you agreed a payment date, it is late after that date. If you did not agree one, it is late 30 days after the customer gets the invoice or the goods or service, whichever is later.
- Interest: 8% a year plus the Bank of England base rate, on the overdue amount, for each day it is late.
- Fixed compensation: £40 for a debt under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. You can also claim reasonable costs each time you try to recover the debt.
You add the interest and compensation to the amount the customer owes and ask for it. If they still do not pay, you can use the courts.
Upsides and downsides
Upsides
- Free to use, and the interest is usually much higher than bank savings rates
- A legal right that does not need the customer's agreement
- Fixed compensation sums are easy to work out and add to an invoice
- Saying on your invoices that you will charge it can encourage prompt payment
Downsides
- It does not bring cash in today. You only get it when the customer pays
- Customers may push back, especially large customers you rely on
- Enforcing it can mean court action, which takes time and money
Risks
- Damaging a valuable customer relationship
- Spending more on recovery than you get back on small debts
What it costs
- How it is priced
- You earn interest at 8% plus Bank of England base rate a year, plus a fixed sum per debt
- Costs that are easy to miss
- Your time chasing payment
- Court or debt recovery costs if the customer refuses to pay
- The risk of upsetting a customer you want to keep
Interest on the overdue amount, plus a fixed £40, £70 or £100 per debt depending on its size.
Does it fit?
Could fit when
- You sell to other businesses or the public sector
- Customers regularly pay after the agreed date
- You have clear written payment terms and dated invoices
Unlikely to fit when
- Your customers are consumers
- Your contract already sets its own late-payment interest rate
- You need cash immediately and cannot wait for the customer to pay
- Your business customers usually pay on time (this only helps with late payers)
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Only for businesses that sell to other businesses
- Only for debts owed by another business or a public authority, not by consumers
- You cannot claim the statutory rate if your contract sets a different interest rate for late payment
Am I ready?
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- Written payment terms
- Clear, dated invoices
- A list of overdue invoices
Regulation and protections
This is a legal right under the Late Payment of Commercial Debts (Interest) Act 1998. You enforce it yourself, through the courts if necessary.
The Small Business Protections Bill (in Parliament as the Commercial Payments Bill) would cap payment terms for large firms at 60 days and make late-payment interest mandatory. It was introduced on 19 May 2026 and was not yet law when last checked.
Types of provider: None needed. You claim it yourself; Debt recovery agencies; Solicitors.
Also consider
Sources
- GOV.UK: Late commercial payments: charging interest and debt recovery · checked 7 October 2026
- GOV.UK: Charging interest on commercial debt · checked 7 October 2026
- GOV.UK: Claim debt recovery costs · checked 7 October 2026
- legislation.gov.uk: Late Payment of Commercial Debts (Interest) Act 1998 · checked 7 October 2026
- GOV.UK: Largest crackdown on late payments in over 25 years as landmark Bill enters Parliament (19 May 2026) · checked 7 October 2026
- UK Parliament: Commercial Payments Bill [HL], bill stages · checked 7 October 2026