Late payment charges explained

Did you know that you can claim late payment charges and interest if another business is late paying you? The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses the right to charge interest on invoices that have become overdue.

Your right to add interest and late payment charges applies to 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, sole-traders, self-employed or freelancers.

You can claim interest and fees back as soon as your invoice becomes overdue in accordance with your payment terms. However, If you have not stated your payment terms on your invoice, the law says that that a payment becomes late 30 days after an invoice was sent or the goods/service delivered.

Late payment interest calculator

You can add 8% interest above the bank base rate to an overdue payment from the day after the invoice became overdue. So, if your invoice was sent on the 1st of the month and your terms are 30 days, then you can start charging interest from the 31st day.

You must work out the interest on each invoice outstanding to you if multiple invoices are outstanding from the same debtor.

Interest is added to the the gross amount of the debt including VAT, however you cannot charge VAT on the interest added.

You can’t claim statutory interest if there’s a different rate of interest in a contract. (For example your terms state 4% interest is payable).

Use our late payment interest calculator to work out how much interest you can legally add to your bill.

Please enter values without a currency symbol

Late Payment Fees

As well as claiming 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.

See our chart below

Debt Owed: Up to £999.00

You can charge: £40

Debt Owed: £1,000 to £9,999.99

You can charge: £70

Debt Owed: £10,000 or more

You can charge: £100

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

Interest Amount + Late Payment Fee Amount =(total fee)

Add the total fee to the debt amount owing and issue the debtor with a Letter Before Action/Demand, explaining the late payment fees and interest added.

Late payment fees and interest are payable! If the debtor fails to pay, you can continue to pursue them through the Small Claims Court.