If another business pays your invoice late, you can usually claim statutory interest at 8% a year above Bank of England Bank Rate, plus a fixed sum towards the cost of recovering the debt. The right comes from the Late Payment of Commercial Debts (Interest) Act 1998, which applies across the UK. This guide explains when the Act applies, how much late payment interest a business can claim, how to work it out step by step, and what to do in England and Wales if the debt is still not paid.
1. When does the Late Payment of Commercial Debts Act apply?
The Act applies to a contract for goods or services where the buyer and the supplier are both acting in the course of a business, under section 2. "Business" includes a profession and the activities of public bodies, so a council that pays late is covered too. Sales to consumers are not covered.
Under section 1, the right to interest is an implied term of the contract, so it applies even if your terms of business never mention it. It is simple interest: it is worked out on the debt, not on interest already added. The main exception is where your contract sets its own remedy for late payment, covered in part 6 of this guide.
2. What is the statutory interest rate for late payment?
The rate is 8% a year over Bank Rate, the Bank of England's official rate. For England, Wales and Northern Ireland it is set by article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. Other parts of the UK have their own order setting the same rate. The government's guidance on charging interest describes it the same way: 8% plus the Bank of England base rate for business to business transactions.
The Bank Rate you use is not necessarily today's. It is the rate in force on the reference date immediately before interest starts to run:
- 30 June, if interest starts between 1 July and 31 December;
- 31 December, if interest starts between 1 January and 30 June.
Because the rate is tied to the day interest starts, a later change in Bank Rate does not change the rate on that debt. The Bank of England publishes the current Bank Rate and a history of past changes, which gives you the rate on any reference date.
When this guide was updated in November 2026, the Bank of England's page gave Bank Rate as 3.75%, and its history showed the last change on 18 December 2025. That means Bank Rate was 3.75% on both 31 December 2025 and 30 June 2026, so for interest that starts to run at any point in 2026 the statutory rate is 11.75% a year. Bank Rate can change, so check the current Bank Rate and the history for later reference dates.
3. When does a payment become late?
Interest starts to run on the day after the "relevant day" for the debt, under section 4. Which day that is depends on your payment terms.
- No agreed payment date. The payment is late after 30 days. The 30 days begin with the later of the day you delivered the goods or service and the day the customer had notice of the amount, usually when they received your invoice.
- An agreed payment date. Interest runs from the day after that date.
- Agreed terms longer than 60 days. Between businesses, if the agreed date falls after the end of a 60-day period, counted the same way, interest runs from the end of the 60 days instead, unless the longer term is not grossly unfair to the supplier. Where the buyer is a public authority, the limit is 30 days.
The government's guidance on late commercial payments sets out the same rules in plainer terms.
4. How to work out late payment interest, step by step
You do not need a late payment interest calculator. The formula is:
daily interest = debt × statutory rate ÷ 365
Work through it in this order:
- find the day interest starts to run, using part 3 of this guide;
- find Bank Rate on the reference date before that day;
- add 8% to get the statutory rate;
- work out the daily interest with the formula;
- multiply by the number of days until you are paid;
- add the fixed compensation sum in part 5 of this guide.
A worked example. These figures are illustrative only, chosen to keep the arithmetic simple; they are not today's rates. Suppose a business is owed £10,000 and the reference Bank Rate was 2%, so the statutory rate is 10%. The annual interest would be £1,000, or about £2.74 a day. After 60 days, the interest would be £164.38 (10,000 × 0.10 × 60 ÷ 365). This follows the same method as the example in the government's guidance on charging interest.
With the fixed sum for a debt of that size, set by section 5A, the claim in this example would be £10,000 of debt, £164.38 of interest and £100 of compensation.
5. Fixed compensation and reasonable recovery costs
Once statutory interest starts to run, section 5A also entitles you to a fixed sum on top of the interest: £40 for a debt under £1,000, £70 for a debt of £1,000 or more but under £10,000, and £100 for a debt of £10,000 or more. The government guidance on debt recovery costs notes that you can charge it only once for each payment.
If your reasonable costs of recovering the debt are higher than the fixed sum, section 5A(2A) lets you claim the difference as well. Keep records of what recovery actually cost, such as invoices from a solicitor or recovery agent, because the costs have to be reasonable.
6. When the contract sets its own interest rate
Under section 8, where the parties have agreed a "substantial remedy" for late payment, such as a contractual interest rate, the debt does not carry statutory interest unless they agree otherwise.
A contract cannot simply switch the right off. A term that excludes statutory interest, or replaces it with a remedy that is not substantial, is void to that extent. Section 9 treats a remedy as substantial unless it is not enough to compensate the supplier or deter late payment, and it would not be fair or reasonable to let it replace the statutory right. Bargaining strength, and whether one side imposed the term through standard terms, are part of that judgement.
In practice:
- if your contract sets its own interest rate and it is a substantial remedy, that rate applies instead;
- if no rate was agreed, the statutory rate applies;
- if the buyer's terms exclude interest or set a very low rate, that term may not hold, and it is worth taking advice.
7. How to tell the debtor
Statutory interest runs whether or not you mention it, but the debtor should know it is being added. The government guidance suggests sending a new invoice when you add interest. It should show:
- the original invoice number, date and amount;
- the date interest started, and the rate you are using;
- the daily interest and the total to date;
- the fixed compensation sum;
- a deadline for payment.
Keep it factual and calm. Showing the working makes the figure harder to dispute, and a debtor who sees interest building each day may move the payment up their list.
8. If the debt is still not paid
Interest and compensation add to the debt, but they do not collect it. In England and Wales the usual next steps are a final demand, a claim in the county court and, if a judgment is not paid, enforcement. The full route is set out in how to recover a business debt in the UK.
- Final demand. Before going to court, write to the debtor setting out the debt, the interest and the fixed sum, with your working and a deadline. The government's guidance on making a court claim for money notes that you may not need a hearing if the other side agrees to pay, or if you reach an agreement through mediation.
- A county court claim. The same guidance explains how to apply to the county court, online or by post. Set out the interest and the fixed sum separately from the debt, with your working. Smaller and larger claims are handled differently; see small claims and the fast track for business debts.
- No response. If the debtor does not respond to the claim, you may be able to ask the court for judgment in default; see default judgment for a business debt.
There is also a time limit. In England and Wales, under section 5 of the Limitation Act 1980, an action founded on simple contract cannot be brought after six years from the date the cause of action accrued. Where the debt rests on an ordinary contract, leaving it for years can mean losing the right to sue for it. The limitation period for business debts explains how the six years are counted. Northern Ireland and other parts of the UK have their own court rules and time limits.
When to pass it on
Adding interest yourself makes sense while the customer is still talking to you and the amount is clear. It may be time to pass the debt on if:
- the debtor has stopped replying, or keeps promising payment that does not arrive;
- the debtor disputes the debt, the interest or your payment terms;
- you are not sure the debtor is still trading, or where to find them;
- the debt is getting close to six years old.
If you have a late-paying business customer and want to know whether the debt is worth pursuing, tell us about the debt. You can also read how we work.
This guide is general information about the law in England and Wales as it stood when it was written. It is not legal advice, and it does not take account of your circumstances. For advice on a particular case, speak to a solicitor.