Late Payment Interest and Compensation: What You Can Legally Charge in the UK

If you're asking whether you can charge interest on a late invoice in the UK, the short answer is yes, and most freelancers and small businesses never claim it.

The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business a statutory right to add interest and fixed compensation to an overdue business-to-business invoice, automatically, whether or not you mentioned it anywhere.

This guide covers exactly what that right is worth right now, how the interest is actually calculated, the fixed compensation bands, and, most usefully, how to state the figure in a chase letter so a client takes it seriously.

1. What the Late Payment of Commercial Debts (Interest) Act 1998 gives you

The Late Payment of Commercial Debts (Interest) Act 1998 is the piece of UK law that lets a business charge interest on money it's owed by another business, once an invoice goes overdue.

It exists precisely because late payment used to be cost-free for the debtor and pure loss for the supplier. The Act rebalances that by giving the creditor a statutory right to interest, plus a fixed sum toward the cost of chasing the debt, without having to negotiate either one into the original deal.

Two things make it different from simply adding your own late fee. First, it's a statutory right: Parliament put the rate and the compensation bands into law, so you don't need a clause in your contract or terms and conditions for it to apply.

Second, it applies automatically to a qualifying debt the moment payment becomes late; you don't need to warn a client in advance that you intend to use it, though doing so tends to concentrate minds.

2. Does it apply to you? B2B debts, no contract needed

The Act applies to qualifying debts between businesses: what's usually called business-to-business, or B2B. If you invoiced another business, a sole trader, or a limited company for goods or services, and that invoice is now overdue, this applies to you. It does not apply to consumer debts, where the person who owes you money bought as an individual for personal use rather than for their business. A separate set of consumer credit rules governs that instead.

The detail that surprises most freelancers: you don't need a signed contract, or even a written one, for any of this to kick in.

There is one limit worth knowing before you assume the statutory rate automatically wins: under section 8 of the Act, a contract can't remove your right to interest outright, but if your contract already sets out a different remedy for late payment that counts as a genuine "substantial remedy", one that fairly compensates you and discourages late payment, that agreed remedy can apply instead.

Check your own terms before you quote the statutory figure, in case you've already agreed something different.

Everything above assumes a UK-to-UK debt. If your client is based outside the UK, whether the Act applies at all depends on your contract's governing law rather than where they are, see our guide to chasing an unpaid invoice from an overseas client before assuming the statutory rate is available to you.

3. The statutory interest rate right now

Statutory interest is calculated at the Bank of England base rate plus a fixed 8% set by the Act. The base rate moves when the Monetary Policy Committee decides to change it, so the combined figure isn't fixed for good: it's whatever the base rate happens to be on the day you're calculating, plus 8%.

As things stand, the Bank Rate is 3.75%, held at that level at the MPC's meeting concluding 17 June 2026, which makes the combined statutory rate 11.75% a year. Checked 5 July 2026. The next scheduled MPC decision is due 30 July 2026, so reconfirm the base rate if you're quoting this figure after that date.

Applied daily, that works out at roughly 3p a day for every £100 outstanding, small on a single overdue invoice, but it adds up quickly across several invoices, or a debt that drags on for months.

4. Simple interest, not compound: how it's calculated

Statutory interest under the Act is simple interest, not compound. That means it's calculated on the original invoice amount only: it doesn't earn interest on interest that has already built up. The calculation itself is straightforward:

Interest starts accruing the day after the invoice was due, and keeps accruing, daily, at the rate that applied on each day, right up until the debt is paid. If the base rate changes partway through the period the invoice is overdue, the correct approach is to apply each rate for the days it was actually in force, rather than using today's rate for the whole period.

Working this out by hand every time an invoice ages another week is exactly the kind of repetitive admin that pushes many freelancers toward accounting software like Sage^(affiliate), which tracks the running total automatically instead of needing a fresh calculation each time.

5. Fixed compensation: the £40 / £70 / £100 bands

On top of interest, the Act lets you add a fixed sum toward the cost of recovering the debt: set by the size of the invoice, not by what you actually spent chasing it. You're entitled to this the moment the debt becomes late; you don't need a single receipt or a timesheet to justify it.

If your actual costs of recovering the debt turn out to be higher than the fixed sum: a solicitor's letter, for instance, or the time spent on a drawn-out chase, you can claim the difference on top, provided you can show what you spent. For most freelancer invoices, the fixed amount alone is the one worth claiming: it's automatic, it needs no evidence, and it's rarely disputed.

6. Worked example: what a real invoice would earn you

Take a £3,200 invoice that's 45 days overdue, with no payment and no dispute. Here's what the Act actually entitles you to on top of the original amount, using the current 11.75% combined rate.

£116.36 on top of the original amount, for a debt that's a month and a half late. Not life-changing on one invoice, but real money you're entitled to and most people never ask for.

Scale it up and the figure stops looking trivial. Take a £12,500 invoice, 20 days overdue, a larger job, chased quickly rather than left to drift:

£180.48 added to a debt that's barely three weeks late. Run this across several invoices a year, or a debt that drags on for months rather than weeks, and the interest and compensation you're leaving on the table adds up fast, and it's money you're legally entitled to but have to actively claim.

7. How to state it in your chase letter

Knowing the figure is only half the job: it needs to appear clearly in whatever you send the client, not buried or left as a vague threat. State the rate, the basis for it, and the exact total, so the client sees a real number rather than a generic warning that "interest may apply."

Drop that paragraph into a firm chase, a final demand, or a letter before action: the wording works at any of those stages, adjusting only the figures for however many days have passed.

For the full letter this paragraph sits inside, and exactly when to escalate to it, see our letter before action guide. For a step-by-step walkthrough of applying all of this to a real invoice, from working out the days overdue to deciding whether to charge it at all, see our guide to charging interest on overdue invoices.

8. Common mistakes to avoid

• Compounding it by accident: statutory interest is simple, calculated on the original invoice amount only, never on interest that's already accrued.
• Using a stale base rate: the Bank Rate changes at MPC decisions; confirm the current figure rather than reusing a number from a previous invoice.
• Skipping compensation because you "didn't spend that much": the fixed sum doesn't require proof of cost; you're entitled to it regardless.
• Applying it to a consumer debt: it only applies business-to-business, not to an individual buying for personal use.
• Assuming the statutory rate always wins: check your own contract terms first; a genuine alternative remedy for late payment can override it under section 8 of the Act.
• Leaving the figure vague: "interest may be added" reads as an empty threat; an exact rate and total reads as a business that knows its rights.
• Forgetting to update it on the day you send the letter: interest keeps accruing daily, so a figure calculated last week is already slightly out of date; recalculate to the day you actually send it.

9. What if it still isn't paid?

Stating the interest and compensation clearly is often what gets an overdue invoice paid: it signals that you know your rights and have already done the sums. If it doesn't work, the figure doesn't disappear; it carries forward into whatever you send next: a firmer chase, a final demand, and eventually a letter before action, all with the total recalculated to the day.

If a letter before action is ignored too, the same interest and compensation figures go straight into a Money Claim Online claim: you're not starting the calculation again, just carrying it through to court. See our small claims court guide for exactly how that claim works, from filing to judgment.

If this debt has already been outstanding for some time, it's worth checking how much of that six-year window you have left before it becomes unenforceable. See our guide to how long you have to chase an unpaid invoice in the UK for exactly how that limit works.

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