If a UK business client pays your invoice late, the law is on your side. You can charge statutory interest at 11.75% per year, claim fixed compensation of up to £100 per invoice, and recover your reasonable costs. This guide shows you exactly how to calculate and claim late payment fees, step by step.
What does UK law let you charge on an overdue invoice?
The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business the automatic legal right to charge interest on late business-to-business payments, plus fixed compensation per invoice. You do not need a late-payment clause in your contract: the right is implied by law the moment statutory interest starts running.
For a debt that becomes overdue between 1 July and 31 December 2026, the numbers are:
- Statutory interest: 11.75% per year (Bank of England base rate of 3.75% plus 8%). This is simple interest, not compounded, and it runs from the day after the payment due date until the day you are paid.
- Fixed compensation: £40 for debts under £1,000, £70 for debts of £1,000 to £9,999.99, and £100 for debts of £10,000 or more, claimable once per unpaid invoice.
- Reasonable recovery costs: anything your fixed sum does not cover, such as debt-collection or solicitor costs, can also be claimed with evidence.
GOV.UK confirms the compensation bands and sets out how the rules apply to commercial payments.
Rates last reviewed: October 2026.
When does an invoice officially become “late”?
An invoice becomes late the day after its agreed payment date. If you and the client agreed nothing, the law defaults to 30 days from the later of the invoice date or the date the work was delivered. Public authorities must pay within 30 days; B2B contracts can set up to 60 days, and longer terms can be challenged as grossly unfair. Stating those terms clearly on the invoice itself prevents most disputes — see how to write an invoice that protects you.
So if you invoice a client on 1 October with no terms agreed, payment is due by 30 October, and statutory interest starts accruing on 31 October. The key lesson: always state payment terms on every invoice, because the due date you set is the line everything else hangs off. LancerBill’s free invoice generator puts clear terms on every invoice you send, which removes the most common argument late payers hide behind.
How is statutory interest calculated?
Statutory interest uses a fixed annual rate tied to the Bank of England base rate plus 8 percentage points. The reference rate resets twice a year: the base rate in force on 30 June applies to debts becoming overdue from 1 July to 31 December, and the rate in force on 31 December applies from 1 January to 30 June.
The formula is straightforward:
Interest = overdue amount × 11.75% × (days late ÷ 365)
Worked example. Say a client owes you £2,500 and pays 30 days late, with the debt becoming overdue in August 2026:
- Annual rate: 3.75% (BoE base) + 8% = 11.75%
- Daily interest: £2,500 × 0.1175 ÷ 365 = £0.8048 per day
- Interest for 30 days: £0.8048 × 30 = £24.14
- Fixed compensation (debt under £1,000 to £9,999.99 band): £70
- Total claimable on top of the £2,500 invoice: £94.14
For a larger debt, say £12,000 paid 60 days late: £12,000 × 0.1175 × 60 ÷ 365 = £231.78 in interest, plus £100 fixed compensation, for a total of £331.78. Running the maths yourself each time is slow, so use LancerBill’s late payment fee calculator to get the interest and compensation figures instantly.
What fixed compensation can you claim per invoice?
Section 5A of the 1998 Act entitles you to a fixed sum for each qualifying debt, on top of the interest. This is meant to cover the cost of chasing the payment, and it is yours automatically once interest starts running. The full text of the Act on legislation.gov.uk sets the bands exactly:
| Debt amount | Fixed compensation |
|---|---|
| Less than £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Three rules to remember: you can claim the fixed sum only once per unpaid invoice; if your genuine recovery costs exceed the fixed sum, you can claim the difference as well; and none of this applies to consumer debts, only business-to-business and public authority payments.
Tip: late payments do more than annoy you, they silently eat into your earnings. If late payers are becoming a habit, check the difference between profit margin and markup so you know exactly how much uncollected money your business can actually absorb.
Do you need late payment terms in your contract?
No. The 1998 Act implies the right to statutory interest into every qualifying business contract automatically, so it applies even if your contract says nothing about late payment. But putting the terms in writing anyway is strongly recommended, because it removes arguments about when payment was due.
If you do set your own contractual rate, it must be a “substantial remedy” for late payment. A token rate of, say, 1% per year can be thrown out by a court and replaced with the statutory rate. In practice, many freelancers simply reference the statutory regime in their terms: “Payment due within 14 days. Statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 will apply to overdue balances.” State the same terms on your quote as well, since a quote generated with LancerBill sets expectations before the work even starts.
How do you charge late fees in practice?
Charging is a process, not a single message. Follow these steps:
- Confirm the due date. Check the invoice terms and count forward. Interest starts the day after payment became due.
- Send a firm reminder. A polite but clear message before the due date prevents many late payments. After it passes, reference the Act: “Statutory interest of 11.75% per annum is now accruing, and £70 fixed compensation applies under section 5A of the Late Payment of Commercial Debts (Interest) Act 1998.”
- Calculate the figures. Use the formula above or the late payment fee calculator so your numbers are exact.
- Issue a revised statement. Send an updated balance showing the original invoice amount, accrued interest, and the fixed compensation sum.
- Escalate if ignored. A formal letter before action, giving 14 to 30 days to pay or agree a written payment plan, is the standard next step.
Watch out: interest and compensation only apply to qualifying commercial debts. If your client is an individual consumer rather than a business, the 1998 Act does not apply, and you need to rely on whatever your contract says.
What if the client still does not pay?
If letters and reminders go nowhere, you have three practical options. The Small Business Commissioner offers a free complaints service for smaller businesses paid late by larger ones, and naming and shaming poor payers often prompts payment on its own. You can start a money claim online through the courts for debts up to £10,000, a process designed to be used without a solicitor. Or you can engage a commercial debt-recovery firm, which is often more cost effective than court action when the debt is properly documented.
Your strongest position in any of these routes is clean paperwork: signed terms, dated invoices, dated reminders, and a dated revised statement. Get into the habit of recording everything from the first invoice onward.
Finally, keep perspective on the underlying numbers. The fee only protects money you are actually owed, so make sure your invoices reflect what your time is really worth. Calculate your true freelance hourly rate first, and late fees stay what they should be: a deterrent, not an income stream.
Key takeaways
- UK law gives you automatic statutory interest on late B2B invoices: currently 11.75% per year (BoE base rate 3.75% plus 8%) until 31 December 2026.
- You can also claim £40, £70 or £100 per unpaid invoice as fixed compensation, plus reasonable recovery costs above that.
- Interest runs from the day after the due date; with no agreed terms, the default is 30 days after the invoice or delivery date.
- Your right applies even without a late-payment clause in your contract, but written terms remove disputes about the due date.
- Always show your arithmetic, issue a revised statement, and keep dated records if the debt ever goes to court or a recovery firm.
Late payment fees: FAQs
What is the current statutory interest rate for late payments in the UK?
11.75% per year. It is the Bank of England base rate (3.75%) plus 8 percentage points, and it applies to qualifying debts that become overdue between 1 July and 31 December 2026. The reference rate resets half-yearly, so check the rate in force at the time your debt becomes overdue.
Can I charge late payment fees without a contract clause?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 implies the right to statutory interest and fixed compensation into every qualifying business contract automatically. A contract clause helps avoid arguments about due dates, but it is not required for the right to exist.
How much compensation can I claim per overdue invoice?
£40 for debts under £1,000, £70 for debts of £1,000 to £9,999.99, and £100 for debts of £10,000 or more. You can claim it once per unpaid invoice, on top of interest. If your reasonable recovery costs exceed the fixed sum, you can claim the difference too.
Does statutory interest compound?
No. Statutory interest under the 1998 Act is simple interest, calculated on the outstanding debt balance only. Each day’s interest is the annual rate divided by 365, applied to the unpaid invoice amount, from the day after the due date until payment.
Can I charge late fees to a client who is a consumer?
No, the 1998 Act covers business-to-business debts and public authority payments only. For consumer clients, any late charge must be agreed in your contract and be a fair, transparent term. You cannot apply the statutory rate to a consumer debt.
What should I do first when an invoice goes overdue?
Confirm the exact due date, then send a clear written reminder referencing the Act and the figures accruing. Calculate the interest and fixed compensation, issue a revised statement showing the new balance, and set a firm deadline. Keep copies of everything: clean records are what make recovery work later.
This guide is for general information only and is not financial, tax or legal advice.