Late payment charges explained

Did you know that you can charge late payment fees and interest if your invoice is overdue for payment? The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the right to charge interest on invoices that are overdue.

Late payment Interest and Charges apply for sales to business and public sector customers. But this right does not apply to consumer transactions. So you can charge interest as long as a ‘business transaction’ has taken place. This is whether your customer is a sole-trader or self-employed.

You can claim interest and late fees as soon as your invoice becomes overdue in accordance with your payment terms and what is stated on your invoice.

Adding Late Payment Interest

  • You can add 8% interest above the bank base rate to an overdue invoice from the day after the invoice became overdue.
  • Work out the interest on each invoice outstanding to you if multiple invoices are overdue.
  • Add interest to the the gross amount of the debt overdue, including VAT. However you can’t charge VAT on the interest added.
  • Also you can’t claim statutory interest if there’s a different rate of interest in your contract. (For example your terms state 4% interest is payable).

Late Payment Interest Calculator

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Late Payment Fees

As well as claiming annual interest, did you know that you can also charge a business a fixed amount for the cost of recovering a late commercial payment?
The amount you’re allowed to charge depends on the amount of debt owing to you.

Once you have worked out the interest owed for your invoice, add the figure together with the applicable late payment fee amount below.

Late Payment Fees for business debts

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