How to charge interest on late payments (UK, 2026 guide)

If a business client is paying you late, UK law is already on your side. You do not need a lawyer, a solicitor's letter, or a courtroom to put interest and compensation on the invoice. The right is automatic. It applies to almost every business-to-business transaction in the UK. And it adds up fast.

This guide walks you through exactly what you can charge, when the clock starts, how to word the letter, and the handful of pitfalls that trip people up. By the end you will know what your overdue invoices are actually worth, and how to say so without sounding apologetic.

The one law that matters

The Late Payment of Commercial Debts (Interest) Act 1998, updated by the Late Payment of Commercial Debts Regulations 2013, gives any business supplying goods or services to another business a statutory right to three things on a late invoice:

1. Interest at 8 percent above the Bank of England base rate
2. A fixed compensation payment per invoice
3. Reasonable costs of recovering the debt, over and above the fixed sum

That right exists whether or not you wrote anything about late payment in your contract. You do not have to warn the client in advance. You do not have to send a reminder first. The moment the invoice is late, the entitlement begins.

Two things to know before we go further. First: this applies to B2B transactions only. Consumer debts (invoices to individuals who are not acting in the course of a business) are not covered. Second: a signed written contract can set a different late payment regime, but only if it provides a "substantial remedy" for late payment. In practice, courts have struck down contract terms that try to cut the statutory rate too low. If the client's terms say "no interest on late invoices", that clause is almost certainly unenforceable.

When the clock starts

Interest starts running on the day after the agreed payment date. If you agreed payment within 30 days of invoice, and you sent the invoice on 1 September, the invoice is due on 1 October and interest starts on 2 October.

If no payment terms were agreed in writing, the Act defaults to 30 days from the later of:

• The day you delivered the goods or services, or
• The day the buyer received the invoice

For public sector clients the default is also 30 days, with no option to extend. For private sector clients, 60 days is the longest default and anything longer must be expressly agreed and must not be "grossly unfair".

The practical answer for most freelancers and small businesses: the clock starts 30 days after the invoice was issued, unless the client agreed to something shorter.

The exact numbers

As of autumn 2026 the Bank of England base rate is 4 percent. Statutory interest on a late B2B invoice is therefore running at 12 percent per year.

That compounds daily. On a £2,000 invoice that is 30 days late, you are owed around £19.73 in interest. On a £10,000 invoice 60 days late, you are owed around £197.26. On a £25,000 invoice 90 days late, you are owed around £739.73.

On top of the interest, the Act gives you a fixed compensation payment per invoice, scaled by invoice value:

• Invoice under £1,000: £40
• Invoice £1,000 to £9,999.99: £70
• Invoice £10,000 or more: £100

Each late invoice attracts its own compensation payment. If a client is holding four late invoices from you, each one between £1,000 and £10,000, that is £280 in compensation before you add a penny of interest.

And on top of both, you can claim your "reasonable costs" of chasing the debt, where those costs exceed the fixed compensation. That covers things like credit control staff time, external debt collector fees, and reasonable legal costs. You cannot claim your own hourly rate for sending a reminder email, but you can claim what a third party would have charged.

How to actually charge it

There is no form to fill in and nobody to tell. You simply issue a document that updates the balance the client owes, and keep a record of your calculation. The usual way is to send a letter, email, or statement that itemises:

• The original invoice number, date and amount
• The due date
• The number of days the invoice is overdue (up to the date of your letter)
• Statutory interest at 8 percent plus 4 percent base rate (so 12 percent per annum) applied daily
• The fixed compensation sum (£40, £70 or £100 depending on invoice value)
• A revised total owed

You do not need to raise a VAT invoice for the interest or the compensation. HMRC treats both as outside the scope of VAT (the interest and compensation are not consideration for a supply, so no VAT applies). You can simply add them as separate lines on a statement of account, or on a formal demand.

A letter template that works

Short, firm, no apology. Something like this:

Dear [name],

Our invoice [number], dated [date], for £[amount] was due for payment on [due date]. As of today the invoice is [X] days overdue.

Under the Late Payment of Commercial Debts (Interest) Act 1998 I am entitled to charge statutory interest at 8 percent above the Bank of England base rate (currently 12 percent per annum) and a fixed compensation sum of £[40 / 70 / 100] per overdue invoice.

The revised balance owed is:

Original invoice: £[amount] Statutory interest to date: £[figure] Fixed compensation: £[figure] Total now due: £[figure]

Please settle the full balance within 7 days. Interest continues to accrue daily until the invoice is paid.

Kind regards, [Your name]

That letter is not aggressive. It is a statement of fact and law. Most clients who were ignoring you will pay once they see a specific number tied to a specific statute. The ones who do not pay are the ones you were going to have to escalate anyway, and this letter is also the paper trail you will want if you end up filing in the small claims track of the county court.

The pitfalls

A few things worth knowing before you send the letter.

Do not threaten what you will not do. If you write "we will take legal action by Friday", mean it. Empty threats damage your credibility and can be used against you if the matter does end up in court.

Keep the interest calculation daily, not monthly. The Act requires simple daily interest. A monthly figure is fine for a readable statement, but your working out should be: (invoice amount) x 0.12 x (days overdue / 365).

Only one compensation payment per invoice. You cannot charge £70 compensation this month and another £70 next month on the same invoice. The fixed sum attaches once, when the invoice first becomes late.

You can waive it, but think twice. Some clients will ask you to "drop the interest if we pay today". That is your call. If the relationship matters and the delay was genuinely one-off, waiving the compensation can be good business. If the client is a repeat offender, charging it in full is how you train them to pay you first next time.

Consumer clients are different. If your client is a sole trader paying from a personal account for personal use, the Act does not apply. For almost all freelance and B2B work this is irrelevant, but worth knowing.

Public sector is 30 days, full stop. If you invoice a council, an NHS trust, or a government department, their payment term is 30 days by law. No "net 60" terms, no "payment on receipt of signed PO". If they try to push payment past 30 days, interest starts anyway.

What this actually gets you

Charging statutory interest is not a windfall. It is restoration. It covers the cost of your money being tied up and the cost of your time being spent chasing. For a freelancer with one or two late invoices a quarter, it is £150 to £400 a year you were not collecting. For a small business carrying £20,000 of overdue receivables at any given time, it is more like £2,400 a year.

The real value is behavioural. Clients who know you will add interest tend to pay on time. The letter above, sent once, usually resolves the invoice. More importantly, it changes the conversation on every invoice after that one.

You do not need to be ruthless to be paid. You need to be specific. The law gives you the specifics for free.

Work out your own number

The arithmetic above is a worked example. Your invoice, your days overdue, your interest. The simplest way to do it is to use our late payment interest calculator, which applies the current base rate and the right compensation band automatically, and gives you the exact figure to put on the letter.

If the client ignores the letter, your next step is a Letter Before Action, then the Money Claim Online service. That is a separate guide, and we will link it here when it is ready.