Guide

Late payment fees and interest: what you can charge

Can you charge a client for paying late? If it is a business-to-business invoice in the UK, yes. The Late Payment of Commercial Debts (Interest) Act 1998 gives you a legal right to interest and compensation on top of the debt - whether or not you mentioned it on the invoice. Here is what you can claim and how.

Statutory interest

You can charge statutory interest of 8% plus the Bank of England base rate on the overdue amount. It runs from the day after payment was due until the day it is paid. On a £1,000 invoice a month late, that is a few pounds - small, but it makes the point that the clock is running. Work out the exact figure with our late payment interest calculator.

Fixed compensation

On top of interest, you can claim a one-off fixed sum per invoice to cover the cost of chasing:

• £40 for a debt under £1,000
• £70 for a debt of £1,000 up to £9,999.99
• £100 for a debt of £10,000 or more

Reasonable recovery costs

If the fixed sum does not cover what it actually cost you to recover the debt - for example, the reasonable cost of using a debt recovery service - you can claim the difference on top.

Do you have to charge it?

No. It is a right, not an obligation, and many people waive it to protect a relationship. A common approach is to mention it only when an invoice goes seriously overdue: "from this point, statutory interest applies under the Late Payment Act" often focuses a client's attention without you having to actually pursue it.

When it does not apply

These rules are for business-to-business debts. Different rules apply to consumers. And if you have agreed your own contractual interest rate with the client, that can apply instead of the statutory one.

How to claim it

Set out the interest and compensation clearly when you chase - typically once an invoice is well overdue or in a letter before action. State the original amount, the interest accrued to date, the fixed compensation, and the new total. Keep a record of every reminder; if it ends up in the small claims court, that record and the calculation are exactly what you will need. See what to do when a client won't pay for the full path.

General information for the UK, not legal or financial advice. Statutory interest and the base rate change over time - check the current figures, or speak to a professional, before relying on these numbers.