How To Charge Statutory Interest On Late Payments In The UK

Late payment can be more than just frustrating - it can put real pressure on your cash flow, your ability to pay suppliers, and your confidence to grow.

The good news is that UK law often gives small businesses the right to charge late payment interest (including statutory late payment interest) when another business pays you late.

But there’s a catch: you’ll get the best results when your contracts, invoices, and credit control process all line up. Otherwise, you risk disputes, pushback, or simply not getting paid.

Below, we’ll walk you through how interest on late payment works in the UK, when you can charge it, how to calculate it, and what you should include in your contracts to protect your business from day one.

What Is Late Payment Interest (And Why Does It Matter For Small Businesses)?

Late payment interest is interest you charge when your customer pays an invoice after the due date. Think of it as compensation for:

• the time you’ve been kept out of your money
• the admin cost of chasing payment
• the knock-on cash flow disruption to your business

For small businesses, it matters because late payment isn’t just a “minor delay” - it can mean:

• you can’t pay your own suppliers on time
• you dip into savings or overdrafts to cover costs
• you spend hours chasing invoices instead of doing paid work

In many B2B situations, the law can give you a right to statutory interest on late payments (even if your invoice didn’t mention it), as long as the right conditions are met and your contract doesn’t already provide a “substantial remedy” for late payment.

That said, how you communicate and document your right to charge interest for late payment is usually what determines whether you actually collect it - and whether it escalates into a dispute.

When Can You Charge Statutory Interest On Late Payments?

In the UK, statutory late payment rules for businesses mainly come from the Late Payment of Commercial Debts (Interest) Act 1998 (often called the “Late Payment Act”).

In plain English, it can allow you to charge statutory interest on late payments when you supply goods or services and you’re not paid on time - as long as it’s a qualifying “commercial debt” and there isn’t an agreed contractual remedy that’s considered a substantial remedy for late payment.

Does Statutory Interest Apply To Your Situation?

Statutory interest is most commonly available where:

• You are selling B2B (business-to-business), or supplying to a public authority (like a local council).
• The payment is late under the agreed payment terms (or late under the default statutory rules where payment terms weren’t clearly agreed).
• The debt is not genuinely disputed (or at least not disputed on reasonable grounds).

It generally doesn’t apply to consumer debts in the same way (so if you’re selling to individuals, your approach usually needs to focus on your contract terms and consumer law compliance).

It’s also important to know that statutory interest isn’t always a “free extra” you can add in every case. If your contract already provides a substantial remedy for late payment (for example, a clear contractual interest clause and/or meaningful late payment remedies), that can affect whether statutory interest applies.

When Does Interest Start Accruing?

This is where many businesses get caught out. Interest doesn’t start “whenever you feel like it” - it starts based on a legal trigger.

Statutory interest usually starts accruing from the day after the payment becomes due. What counts as “due” depends on what you agreed - and, if you didn’t agree clear terms, the statutory default rules.

• If your contract sets a payment date or payment period (e.g. “payment within 14 days of invoice”), interest typically runs from the day after that deadline.
• If your contract doesn’t clearly set payment terms, statutory rules can impose a default deadline. Often (particularly for B2B and public authority payments), the default is 30 days from the later of (i) the day the customer receives your invoice (or equivalent request for payment) and (ii) the day the customer receives the goods or services. If there’s a formal acceptance/verification process, that can affect the start date too.

In many cases, businesses can agree different payment terms - but there are limits. For example, B2B payment terms over 60 days may be unenforceable if they’re considered grossly unfair, and public authorities are generally expected to pay within 30 days.

If you’re regularly chasing invoices and getting the same pushback (“we didn’t know your payment terms”), it’s a sign your paperwork needs tightening. A clear Terms of Trade can make a big difference here.

What Else Can You Claim Under The Late Payment Act?

In addition to statutory interest, you may also be able to claim a fixed sum as compensation for the cost of recovering the debt (often referred to as “late payment compensation”). The amount depends on the size of the debt.

In some circumstances, you may also be able to claim reasonable recovery costs (for example, if your actual cost of recovery is higher than the fixed sum), but this is an area where getting advice early is sensible - especially if you think the other side may dispute it.

How To Calculate Statutory Interest On Late Payments (With Examples)

If you’re going to charge interest on late payment, you need to be able to explain your calculation clearly - ideally in one or two lines in an email or statement.

The Statutory Interest Rate

The statutory rate is typically:

Bank of England base rate + 8% per year

The Bank of England base rate can change over time, so the applicable rate may depend on when the debt became late. In practice, many businesses use the base rate in force at the relevant time and keep a record (e.g. a screenshot or note).

A Simple Calculation Method

A common approach is:

• Work out the annual interest (invoice amount × statutory rate)
• Convert it to a daily rate (annual interest ÷ 365)
• Multiply by days overdue

Example: £5,000 Invoice, 30 Days Late

Let’s assume:

• Invoice amount: £5,000
• Base rate at the time: 5.25% (example only)
• Statutory rate: 13.25% (5.25% + 8%)
• Days late: 30

Annual interest: £5,000 × 13.25% = £662.50

Daily interest: £662.50 ÷ 365 = £1.82 (approx.)

Interest for 30 days late: £1.82 × 30 = £54.60 (approx.)

Is £54.60 life-changing? Maybe not. But across multiple late invoices per month, it adds up - and more importantly, it signals that your payment terms aren’t optional.

Do You Charge Interest On VAT Too?

This depends on the circumstances and how the invoice is structured. Often, interest is calculated on the total unpaid amount due under the invoice.

If you’re unsure, or you’re dealing with a higher-value or sensitive customer relationship, it’s worth getting advice so you don’t create an unnecessary dispute over a technicality.

What To Include In Your Contracts And Invoices To Charge Late Payment Interest Confidently

Even if the law gives you statutory rights, the easiest way to charge late payment interest (and actually recover it) is to make it part of your normal contracting and invoicing process.

Here’s what we typically recommend small businesses put in place.

1. Clear Payment Terms (Not Just “Payable On Receipt”)

Your contract should state, clearly:

• when invoices will be issued (e.g. upfront, milestone, monthly)
• the payment deadline (e.g. 7/14/30 days from invoice date)
• how payment must be made (bank transfer, card, direct debit, etc.)
• what happens if the customer pays late

If you’re relying on informal agreements or emails, consider formalising the arrangement with proper Contract Drafting so your position is enforceable and consistent across customers.

2. A Late Payment Interest Clause

Your contract can include either:

• Contractual interest (a rate you agree with the customer), or
• Statutory interest (by referencing the Late Payment Act)

What you choose depends on your industry and bargaining power. Some businesses prefer to reference statutory interest because it’s a recognised benchmark and updates with base rate changes.

Practically, your clause should cover:

• the interest rate (e.g. “base rate + 8%” or a fixed %)
• when interest starts (e.g. “from the day after the due date”)
• whether interest compounds or is simple (many small business arrangements use simple interest)
• your right to recover debt recovery costs/fees (where lawful)

Be careful copying a clause from the internet - one badly drafted sentence can make the whole clause unclear or unenforceable. A targeted Contract Review can be enough if you already have terms but want to tighten them up.

3. Late Payment Compensation And Recovery Costs

If you intend to claim late payment compensation and recovery costs (where applicable), it helps to:

• reference your right to claim them in your terms
• keep your debt recovery costs reasonable and documented
• avoid surprise “admin fees” that aren’t supported by the contract (or by statute)

This is one of those areas where being too aggressive can backfire - especially if it turns an otherwise straightforward overdue invoice into a dispute.

4. Invoices That Back Up Your Legal Position

Your invoice is often the document that gets forwarded to finance teams and approved for payment. So it should reinforce your terms, not undermine them.

At a minimum, make sure your invoices include the basics (like your business details, invoice number, date, and clear description of what’s being charged). Having a consistent process aligned with Invoice Requirements reduces “admin delay” excuses.

It’s also smart to include on the invoice:

• the due date (not just “14 days”)
• your bank details and payment reference requirements
• a short late payment line (e.g. “We reserve the right to charge statutory interest and compensation on overdue accounts.”)

How To Enforce Interest On Late Payments Without Burning Relationships

Charging interest for late payment is one thing. Collecting it is another - especially if you want to preserve a long-term customer relationship.

For most small businesses, the best approach is an escalation process that’s calm, consistent, and well-documented.

Step 1: Friendly Reminder (Assume It’s An Oversight)

Start simple. A polite email with the invoice attached, the due date, and payment details will resolve many late payments.

If you want your reminders to sound firm (without sounding hostile), it can help to follow a structure like a proper Payment Reminder Letter.

Step 2: Second Reminder + Mention Late Payment Interest

If the payment still isn’t made, your second reminder can:

• state the invoice is overdue
• give a short deadline (e.g. 48 hours or 7 days, depending on the relationship)
• confirm you will add statutory late payment interest if not paid by that time

Many businesses only start adding interest at this stage - not because they can’t add it earlier, but because it’s often the best commercial move.

Step 3: Formal Demand / Final Demand

If the customer is still not paying, a formal final demand usually becomes necessary. At this stage, you’ll often set out:

• the outstanding principal amount
• the interest accrued to date (and the daily rate moving forward)
• any compensation you’re claiming
• what happens next if they don’t pay

A structured Final Demand Letter helps you stay consistent and creates a paper trail.

Step 4: Letter Before Action (If You’re Seriously Considering Court)

If you’re prepared to take legal action, you’ll usually send a Letter Before Action (sometimes called a “letter before claim”). This is a key step because it shows the court you gave the other side a fair opportunity to resolve the issue before proceedings.

A Letter Before Action should be drafted carefully - especially if you’re claiming interest and additional sums - so you don’t accidentally weaken your position.

Step 5: Consider Your Options If The Customer Pushes Back

Sometimes a customer won’t pay because they’re:

• having genuine cash flow trouble
• unhappy with the goods/services (rightly or wrongly)
• using delay tactics

If they dispute the invoice, you may need to switch from “debt recovery” mode to “dispute resolution” mode. How you handle it matters, and your emails may end up being evidence later.

If the invoice is disputed, it’s worth reading up on practical approaches to Disputed Invoices so you don’t accidentally escalate a fixable issue into a bigger conflict.

A Quick Note On Contract Terms Vs Statutory Rights

You can often agree your own late payment terms in the contract (including interest). But you should be careful not to rely on terms that are unclear or arguably unfair, because that can lead to:

• the customer refusing to pay the extra charges
• a dispute about what was agreed
• you spending more time and money enforcing than the interest is worth

If you’re regularly dealing with overdue accounts, it’s worth getting your whole invoicing and chasing process aligned with your contracts - including your approach to Chasing Overdue Payments.

Key Takeaways

• Late payment interest can protect your cash flow and discourage customers from treating your invoices as optional.
• In many B2B situations, you can charge statutory interest on late payments under the Late Payment of Commercial Debts (Interest) Act 1998 (typically base rate + 8%), subject to factors like genuine disputes and whether the contract provides a substantial remedy for late payment.
• To claim interest confidently, your best protection is having clear payment terms and a properly drafted late payment interest clause in your contract.
• Your invoices should clearly state the due date and support your legal position, so customers can’t delay payment by claiming “admin confusion”.
• A calm escalation process (reminder → final demand → Letter Before Action) often gets results without damaging commercial relationships.
• If an invoice is genuinely disputed, you’ll usually need a different strategy than standard debt chasing - and your written communications matter.

If you’d like help tightening your payment terms, adding a late payment interest clause, or recovering an overdue invoice, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.