If a business customer has missed your payment deadline, you are legally entitled to charge interest and compensation on the overdue amount. You do not need a clause in your contract to do it. UK law gives every business this right by default, and the rate is set high enough to actually matter.
This guide explains exactly how to calculate interest on an overdue invoice, when you can start charging, how much you can add in fixed compensation, and how to put it into a payment demand. There is a worked example with real numbers below, and you can run your own figures through our free late invoice calculator in seconds.
In the UK, the right to charge interest on overdue commercial invoices comes from the Late Payment of Commercial Debts (Interest) Act 1998. It applies to business-to-business transactions for the supply of goods or services. It does not apply to consumer debts (sales to private individuals).
Under this Act you can claim three things on a late commercial payment:
Crucially, you are entitled to these by statute even if your invoice or contract says nothing about late payment. If your contract sets its own interest rate, that can apply instead, but it must be a "substantial remedy", otherwise the statutory rate takes over.
Statutory interest is calculated as:
8% + the Bank of England base rate
The base rate is fixed for the purposes of this calculation twice a year:
With the Bank of England base rate currently at 3.75%, the statutory interest rate is:
8% + 3.75% = 11.75% per year
That is a deliberately punishing rate. It is meant to make late payment more expensive than paying you on time, and it is far higher than most overdrafts.
Interest starts to accrue from the day after payment was due and runs until the day you are actually paid.
The due date depends on what you agreed:
So if an invoice was due on 1 April and is paid on 16 May, interest is charged on the days from 2 April up to and including the payment date.
The formula is simple:
Daily interest = (Invoice amount × annual rate) ÷ 365
Total interest = daily interest × number of days late
Three steps:
Let's use a £5,000 invoice that is paid 45 days after the due date, at the current rate of 11.75%.
Step 1 — annual interest:
£5,000 × 11.75% = £587.50 per year
Step 2 — daily interest:
£587.50 ÷ 365 = £1.6096 per day
(Or directly: £5,000 × 0.1175 ÷ 365 = £1.6096 per day.)
Step 3 — multiply by days late:
£1.6096 × 45 days = £72.43 in interest
So on a £5,000 invoice that is 45 days overdue, you can charge £72.43 in statutory interest on top of the original amount.
Interest keeps accruing every day the debt remains unpaid, so the figure rises until the customer settles. If they pay on day 60 instead of day 45, the interest would be £1.6096 × 60 = £96.58.
On top of interest, the Act lets you claim a one-off fixed compensation sum for each overdue invoice, to cover the cost of having to chase it. The amount depends on the size of the debt:
| Amount owed | Fixed compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Our £5,000 invoice falls into the middle band, so you can add £70 in compensation.
This is a flat sum per invoice, not per day, and it is in addition to the interest. So for our example the total extra you can claim is:
£72.43 interest + £70 compensation = £142.43 on top of the £5,000.
If your actual recovery costs (for example, a debt collection agency or legal fees) exceed the fixed sum, you can also claim the reasonable difference under the Act.
To summarise what you can add to an overdue commercial invoice:
There is no cap on how long interest can run, and no requirement to warn the customer in advance that you intend to charge it. That said, flagging it clearly tends to get invoices paid faster.
For a fuller breakdown of your entitlements and the limits that apply, see our companion guide: How much interest can I charge on late payments? (UK).
No. The right to charge statutory interest is yours to use or waive. Some businesses choose not to charge a long-standing customer who is normally reliable, while others apply it consistently as a deterrent.
A practical middle ground is to state your entitlement on every invoice ("We reserve the right to charge interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 on overdue amounts") and then decide case by case whether to enforce it. Even mentioning it signals that you take payment terms seriously.
Once you have your figures, the cleanest way to claim is to send a formal late-payment notice that itemises:
You can generate and send a properly worded demand using our late payment notice tool, which fills in the legislation reference and the numbers for you.
For the wider strategy around recovering the debt — escalation, tone, and what to do if the customer still does not pay — read How to chase an unpaid invoice (UK).
Doing the maths by hand is fine for one invoice, but it gets fiddly when the rate changes mid-period or you are juggling several overdue accounts. The quickest, error-free option is to use our free late invoice calculator: enter the invoice amount, the due date and the date paid (or today), and it returns the statutory interest, the correct compensation tier and the total owed, ready to drop into a demand.
It uses the current Bank of England base rate automatically, so you do not have to look it up.
Late payment is a cash-flow problem you are entitled to be compensated for. Run your numbers through the free late invoice calculator and, if you are ready to act, send a late payment notice today.
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