Under the Late Payment of Commercial Debts (Interest) Act 1998 (amended by the 2013 Regulations), UK businesses and sole traders have a statutory legal right to claim statutory interest and fixed compensation charges on overdue commercial invoices from other businesses or public sector bodies.
Unless a contract specifies a different reasonable statutory interest rate, your legal right to claim interest begins automatically the day after the agreed credit period expires (or 30 days after invoice receipt if no payment date was specified).
⚙️ Rules & Thresholds
- Statutory Interest Rate: 8.0% plus the Bank of England Base Rate (e.g., if BoE Base Rate is 5.25%, statutory annual interest is 13.25% per annum).
- Daily Interest Calculation:
(Invoice Amount × Annual Statutory Rate %) / 365 × Days Overdue. - Fixed Debt Recovery Compensation Tiers:
- Invoices under £1,000: £40.00 compensation per invoice.
- Invoices between £1,000 and £9,999.99: £70.00 compensation per invoice.
- Invoices of £10,000 or more: £100.00 compensation per invoice.
- Reasonable Recovery Costs: Under the 2013 Regulations, suppliers can also claim reasonable additional costs of debt collection (such as debt collection agency fees or legal letter costs) above the fixed compensation amount.
📊 Practical Examples
- Overdue Invoice Amount: £3,500.00
- Days Overdue: 45 Days
- Statutory Interest Rate: 13.25% p.a. (8.0% + 5.25%)
- Daily Interest Charge: £1.27 / day (`(£3,500 × 13.25%) / 365`)
- Total Statutory Interest (45 days): £57.14
- Statutory Compensation Charge (Tier £1k-£10k): £70.00
Total Claimable Balance: £3,500 invoice + £57.14 interest + £70 compensation = £3,627.14.
📑 Common Pitfalls
- Assuming Statutory Interest Applies to Consumer Sales (B2C): The Late Payment Act strictly applies to Business-to-Business (B2B) and Business-to-Public Sector transactions; it does not apply to consumer debtors.
- Failing to Issue a Formal Remittance Invoice: Simply calling a debtor is ineffective; re-issuing an updated statement or invoice detailing statutory interest and fixed compensation under the 1998 Act provides formal legal grounds.
- Confusing Payment Terms with Late Interest: Unless agreed otherwise in writing, default credit terms under UK law are 30 days; interest begins accruing on Day 31.
❓ Frequently Asked Questions (FAQ)
You can start charging statutory interest the day after the agreed invoice payment date passes. If your contract does not specify a payment deadline, UK law sets a default credit period of 30 days after the customer receives the invoice or goods/services.
A contract can specify an alternative contractually agreed interest rate for late payment, provided the contractually agreed rate provides a 'substantial remedy' for late payment. However, unfair terms in business contracts that attempt to eliminate late payment remedies entirely can be challenged under the Act.
Yes. The statutory fixed compensation fee (£40, £70, or £100 depending on invoice value) applies individually to every separate overdue invoice, even if multiple overdue invoices are issued to the same corporate client.
If a commercial debtor refuses to pay your invoice plus statutory interest and compensation, you can send a formal 7-day Letter Before Action (LBA) and submit a Money Claim Online (MCOL) claim through the Small Claims Court.