In brief: Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses can charge statutory interest on qualifying late B2B invoices at 8% above the Bank of England base rate, plus fixed recovery compensation of £40, £70 or £100 per invoice depending on its value.

Most suppliers never claim it. Some never should, for commercial reasons. But knowing exactly what the law allows changes every late payment conversation, and the 2026 reforms are about to make interest mandatory rather than optional.

Who can charge late payment interest?

The statutory right applies to business to business transactions for goods and services where no different contractual interest rate applies. Consumers are outside the regime. If your contract sets its own late payment interest rate, that rate generally applies instead, provided it is a substantial remedy.

The right exists automatically. You do not need a clause in your terms to rely on the statute, although stating it clearly on invoices and contracts sets expectations and strengthens your position.

How much can you charge?

Statutory interest runs at 8 percentage points above the Bank of England base rate. The reference rate is fixed twice a year: the base rate on 31 December applies to debts becoming late in the first half of the following year, and the rate on 30 June applies to the second half.

On top of interest, you can claim fixed compensation per late invoice:

  • £40 for debts under £1,000;
  • £70 for debts from £1,000 to £9,999.99; and
  • £100 for debts of £10,000 or more.

You can also claim reasonable recovery costs beyond the fixed sum where they exceed it.

The maths on a real invoice

Take a £5,000 invoice paid 60 days late with a base rate of 4%. Statutory interest runs at 12% annually. The calculation: £5,000 × 12% × 60 ÷ 365 = £98.63 interest, plus £70 fixed compensation. Total claimable: £168.63.

On one invoice that looks modest. Across a debtor book that routinely runs 30 to 60 days late, the entitlement adds up fast, which is exactly why the statute exists: to make late payment cost the payer something.

When does the clock start?

Interest runs from the day after the agreed payment date. Where no date was agreed, the statute sets a default of 30 days from the later of delivery of the goods or services or receipt of the invoice. Public sector payers are held to 30 days.

This is one more reason every invoice should carry a specific calendar due date. A precise date starts a precise clock. Our guide to why clients pay invoices late covers the causes worth fixing first.

Should you actually charge it?

The legal right and the commercial decision are different questions. Sensible practice:

  • State the right everywhere. Terms, contracts and invoice footers should reference statutory interest. Deterrence works best before the debt is late.
  • Use it as leverage first. A reminder that quantifies the accruing interest often unlocks payment without ever invoicing for it.
  • Charge persistent offenders. A customer who is late every month is taking free credit. Pricing that credit is fair.
  • Waive it strategically, in writing. If you choose not to charge a good customer, say so explicitly. A documented waiver preserves the right for next time.

The deeper fix is reducing the number of invoices that go late at all. Interest compensates for the problem; it does not solve it.

What changes under the 2026 reforms?

In March 2026 the government confirmed reforms that will make statutory interest mandatory on late commercial payments rather than something suppliers may choose to claim, alongside a cap on payment terms when large firms pay smaller suppliers and new enforcement powers for the Small Business Commissioner, including fines for persistent late payers.

The measures require legislation and will phase in. The direction is clear: late payment is moving from a tolerated habit to a priced and policed behaviour. Suppliers who already document due dates and payment terms cleanly will be best placed to benefit.

How to claim in practice

  1. Calculate the amount: debt × (base rate + 8%) × days late ÷ 365, plus the fixed compensation band.
  2. Issue a clear demand: a short letter or email stating the invoice, the days late, the interest calculation and the total now due.
  3. Set a deadline: typically 7 to 14 days, and state the next step if unpaid.
  4. Escalate on your written process: letter before action, Small Business Commissioner complaint for larger customers, or court claim as a last resort. Take advice for significant sums.

Prevention beats compensation

Interest recovers some of the cost of a late invoice. Automatic collection prevents the lateness. For repeat customers, a Direct Debit mandate means the invoice amount is collected on the due date, so there is no late period to charge interest on. NRTH connects Xero, QuickBooks and Sage invoices to that collection workflow.

Frequently asked questions

What is the current late payment interest rate in the UK?

Statutory interest is 8 percentage points above the Bank of England base rate, using the reference rate fixed on 31 December or 30 June. Check the current base rate before calculating.

Can I backdate an interest claim?

Interest accrues from the day the debt became late, so a claim naturally covers the full late period. Claims are subject to normal limitation rules, and older claims can be harder commercially, so act promptly.

Do I have to charge interest?

Under current law it is a right, not an obligation. The 2026 reforms propose making interest apply automatically, which would change the default.

Does charging interest damage customer relationships?

It can if applied without warning. Stating the policy upfront, quantifying accruing interest in reminders and reserving actual charges for persistent offenders keeps the tool effective without souring good relationships.

Interest is the fallback. Payment on the due date is the plan.

See how NRTH collects invoices by Direct Debit when they fall due, or talk to the team.

Sources and further reading

Last reviewed: 21 July 2026. Rates and reform timings change; verify current figures before claiming. This is general information, not legal advice.