Statutory Late Payment Interest Explained
Every UK business that supplies goods or services on credit has a legal right to charge interest when customers pay late. This right comes from the Late Payment of Commercial Debts (Interest) Act 1998, which applies automatically to business-to-business (B2B) transactions — even if your contract does not mention it.
Statutory late payment interest exists to protect small businesses from the cash flow damage caused by customers who pay beyond agreed terms. This guide explains the rate, how to calculate it, when to use it, and what else you can claim alongside it.
Key takeaways
- UK businesses can charge 8% above the Bank of England base rate on overdue B2B invoices under the Late Payment of Commercial Debts (Interest) Act 1998.
- You can also claim a fixed debt recovery cost (£40, £70, or £100 depending on the debt amount) on top of interest.
- The right applies automatically — no written contract clause is needed to use it.
- Interest starts accruing from the day after the payment due date.
- Statutory rights can be overridden by a contractual interest clause, but only if that clause provides substantial compensation, not merely a token rate.
What is the Late Payment of Commercial Debts Act?
The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the statutory right to charge interest on overdue invoices from other businesses or public authorities. It was amended by the Late Payment of Commercial Debts Regulations 2013 to align with EU Directive 2011/7/EU (still retained in UK law post-Brexit).
The act covers any contract for the supply of goods or services where both the supplier and purchaser are acting in the course of a business. It does not apply to consumer (B2C) transactions.
Who can use statutory late payment interest?
Any UK business — sole trader, partnership, or limited company — that supplies goods or services to another business or public authority can exercise these rights. There is no minimum or maximum turnover requirement.
What is the statutory interest rate?
The statutory interest rate is the Bank of England base rate plus 8 percentage points. This rate is intentionally set high to act as a deterrent against slow payment — it is significantly above typical commercial lending rates.
Because the Bank of England base rate changes periodically, the effective statutory rate varies. You calculate interest using the base rate in force on the date the debt becomes overdue. Check the Bank of England's current base rate to find the applicable figure.
Example: If the base rate is 4.5%, the statutory rate is 12.5%. On a £5,000 overdue invoice, that accrues at approximately £1.71 per day (£5,000 × 12.5% ÷ 365). You can use our late payment interest calculator to work out the exact amount owed.
When does interest start to accrue?
Interest starts accruing the day after the payment due date. The due date is:
- 30 days after the invoice date (or the date goods or services were delivered, whichever is later) for public sector contracts
- 30 days by default for private sector contracts, unless a different date is agreed
- Up to 60 days maximum for private sector contracts if both parties expressly agree and the extended term is not grossly unfair to the creditor
Can you also claim debt recovery costs?
Yes. In addition to interest, the Late Payment of Commercial Debts Regulations 2013 entitle you to a fixed debt recovery cost for each overdue invoice:
| Amount of debt | Fixed cost you can claim |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Does your contract need to mention it?
No. The right to statutory late payment interest arises automatically by law. You do not need a written contract, and you do not need to include a late payment clause in your invoices or terms and conditions.
However, if your contract includes a contractual interest rate, that rate replaces the statutory rate — provided the contractual term is substantial and not merely nominal. A token rate (such as 0.5%) that does not adequately compensate the creditor may be struck out by a court, reverting to the statutory rate.
If your terms include a meaningful contractual rate, that typically overrides the statutory entitlement. If your terms are silent, the statutory rate applies automatically.
How to charge statutory late payment interest
Steps
- Identify the invoice payment due date and confirm it has passed.
- Count the number of days the payment is overdue.
- Find the Bank of England base rate applicable on the date the debt became late.
- Add 8 percentage points to arrive at the statutory rate.
- Apply the formula: (Debt amount × statutory rate) ÷ 365 × days overdue.
- Add the appropriate fixed debt recovery cost (£40, £70, or £100).
- Issue a separate late payment notice or revised invoice showing the original debt, the interest calculation, and the recovery cost.
What if the customer disputes the interest?
A customer cannot simply refuse to pay statutory interest if the underlying debt is undisputed and overdue. They may legitimately argue:
- The contractual terms specify a different qualifying interest clause
- The agreed payment due date differs from your calculation
- The invoice was disputed in good faith before the due date
Practical tips for using statutory late payment rights
Add a notice to your invoices. While not legally required, adding a line such as "Late payment interest will be charged at 8% above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998" signals that you know your rights and often prompts faster payment.
Do not wait too long. Statutory interest claims are subject to a six-year limitation period in England and Wales (five years in Scotland). If you intend to enforce them, act within that window.
Use it as a negotiating tool. If payment has been outstanding for 90 days, you may accept a modest reduction in the total owed in exchange for waiving accumulated interest, giving the debtor an incentive to settle promptly.
For practical guidance on recovering overdue payments, see our director's guide to chasing late payments and our tips on how to get paid faster as a small business.
Frequently Asked Questions
Can I charge statutory late payment interest on any unpaid invoice?
The right applies to business-to-business invoices only — it does not cover consumer transactions. Both the supplier and the customer must be acting in the course of a business. You can charge interest once the agreed or statutory default payment term has passed, starting from the day after the due date.
What is the current statutory late payment interest rate?
The rate is the Bank of England base rate plus 8 percentage points. Because the base rate changes periodically, the effective rate varies. Check the Bank of England website for the current base rate, then add 8% to calculate the statutory rate applicable to your debt.
Do I need to include late payment terms in my contract?
No. The right to charge statutory late payment interest arises automatically under the Late Payment of Commercial Debts (Interest) Act 1998, regardless of whether your contract or invoices mention it. Including a clause signals awareness and can deter slow payment, but it is not a prerequisite.
Can a customer simply refuse to pay the interest?
If the underlying debt is undisputed and overdue, a customer has no legal basis to refuse statutory interest. They may dispute the due date or argue a qualifying contractual clause applies instead, but a blanket refusal is not a valid defence. Genuine disputes that pre-date the invoice due date can pause interest accrual until resolved.
What is the fixed debt recovery cost I can claim?
On top of statutory interest, you can claim a fixed recovery cost per overdue invoice: £40 for debts under £1,000, £70 for debts between £1,000 and £9,999.99, and £100 for debts of £10,000 or more. This covers your administrative costs of chasing payment and is claimable in addition to interest.
Summary
Statutory late payment interest gives every UK business an automatic legal right to charge interest on overdue B2B invoices at 8% above the Bank of England base rate, plus a fixed debt recovery cost per invoice. No contract clause is required — the right exists by statute and accrues from the day after the payment due date. Used judiciously, it is a powerful tool for maintaining healthy cash flow and for making clear to slow payers that late payment carries real financial consequences.