Late payment interest: how to charge statutory interest in the UK

If another business pays your invoice late, you almost always have a legal right to charge interest and a fixed sum to cover your recovery costs. This guide explains exactly how much you can claim, when the right kicks in, and how to ask for it without burning the relationship.

The legal right: the Late Payment Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses a statutory right to charge interest and compensation on overdue commercial (B2B) invoices. It applies when you are selling goods or services to another business or to a public authority — it does not cover debts owed by consumers.

This right exists by default. As long as you and your customer have not agreed a different, "substantial" contractual interest rate, the statutory entitlement applies automatically. You do not need to have mentioned interest in your terms and conditions, and you do not need the customer's permission to claim it.

How much can you charge?

There are two separate things you can claim on a late commercial invoice: statutory interest and a fixed sum for recovery costs.

Statutory interest

Statutory interest is the Bank of England base rate plus 8%. It is simple interest (not compounded) and it runs from the day after the payment became due, up to the day you are actually paid. Because it is pegged to the base rate, the headline rate moves whenever the Bank of England changes the base rate — so the figure you quote should reflect the base rate in force while the debt is outstanding.

Fixed compensation for recovery costs

On top of interest, you can claim a fixed sum per invoice as compensation for the cost of chasing the debt. The amount depends on the size of the debt:

• Debt up to £999.99 → £40
• Debt of £1,000 to £9,999.99 → £70
• Debt of £10,000 or more → £100

You can claim one fixed sum per overdue invoice. And if your actual reasonable costs of recovering the debt are higher than the fixed sum — for example, fees you pay to a debt-collection agency or a solicitor — you can claim those reasonable additional recovery costs above the fixed amount too.

A worked example

When can you charge it?

An invoice is "late" once it passes the agreed payment date. If you and the customer agreed payment terms — say 14 or 30 days — the clock starts the day after that deadline. If you never agreed a payment period, the law sets a default of 30 days for B2B transactions, running from the later of the date the customer receives the invoice or the date the goods or services are delivered.

Crucially, you can still charge statutory interest even if your own terms said nothing about it. The right comes from the Act, not from your invoice. The only thing that displaces it is a genuine, substantial contractual remedy that the two parties actually agreed.

A polite letter or email template

You rarely need anything aggressive. A short, factual note that sets out the figures is usually enough. Adapt the template below.

Should you actually charge it?

Having the right and exercising it are two different decisions. For a customer you value and who normally pays on time, a one-off slip may not be worth the friction — and you are free to waive the interest entirely.

But the right is useful leverage even when you don't intend to collect every penny. Mentioning that statutory interest is accruing tends to move an overdue invoice up the customer's payment queue, because it signals you know your rights and are tracking the debt. A common, pragmatic approach: quote the interest and fixed sum in your chase, then offer to waive them if the invoice is settled by a clear date. That focuses minds without forcing a confrontation.

Make it automatic

The reason most businesses never charge statutory interest isn't principle — it's effort. Working out the base rate for each period, calculating daily interest per invoice, and remembering to add the right fixed sum is fiddly, so it slips.

in2 collect is AI credit control for UK businesses on Xero and Sage. It can calculate statutory interest and the correct fixed recovery sum for each overdue invoice and fold them into your chases automatically, so the numbers are always right and the wording is always polite. Its AI chasing handles the follow-ups, and its reply and dispute inbox routes every customer response — including queries and "I'll pay Friday" promises — so nothing falls through the cracks. Pay-now links, credit scoring and a cash-flow forecast round it out.

Charging interest is one lever for getting paid faster; tightening your whole collections process is the bigger win. See our guide to reducing DSO for the wider playbook.

FAQ

Can I charge statutory interest if I didn't mention it in my terms?

Yes. The right comes from the Late Payment Act 1998, not from your invoice or contract. It applies by default unless you and the customer agreed a different substantial interest remedy.

Is the interest compounded?

No. Statutory interest is simple interest, calculated only on the outstanding principal.

Does this apply to consumers?

No. The Act covers business-to-business and public-sector debts. Charging consumers is governed by different rules.

Can I claim more than the fixed sum?

Yes, if your reasonable costs of recovering the debt — such as debt-collection or legal fees — exceed the fixed £40/£70/£100, you can claim the reasonable additional amount on top.