If a business owes you money past the agreed payment date, UK law is on your side. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the statutory right to charge interest and claim compensation on every overdue invoice — and most freelancers have no idea.
According to research by the Federation of Small Businesses (FSB), late payments cost the UK small business sector over 50,000 closures each year. The Late Payment Act was specifically designed to combat this. Here is exactly how to use it.
What Is the Late Payment Act 1998?
The Late Payment of Commercial Debts (Interest) Act 1998 — amended by the Late Payment of Commercial Debts Regulations 2013 — gives any business (including sole traders and freelancers) the automatic right to:
- Charge statutory interest on overdue invoices
- Claim a fixed compensation fee on top of the interest
- Recover reasonable debt recovery costs (e.g. solicitor letters, debt collection fees)
Key Point
These rights apply automatically to all B2B (business-to-business) transactions in England, Wales, Scotland, and Northern Ireland. You do not need to include late payment terms in your contract — but it is good practice to do so.
How Much Interest Can You Charge?
The statutory interest rate is 8% per year above the Bank of England base rate. The base rate used is the one in effect on either 30 June or 31 December — whichever date falls immediately before the invoice became overdue.
As of early 2026, the Bank of England base rate is 4.5%, which means the total statutory interest rate is:
4.5% + 8% = 12.5% per year
Or approximately 0.034% per day
Worked Example
Suppose a client owes you £3,000 and the invoice is 45 days overdue:
- Annual interest: £3,000 x 12.5% = £375.00 per year
- Daily interest: £375.00 / 365 = £1.027 per day
- Interest for 45 days: £1.027 x 45 = £46.23
- Plus fixed compensation (see below): £70.00
- Total you can claim: £3,000 + £46.23 + £70.00 = £3,116.23
Fixed Compensation Fees
On top of interest, you are entitled to a fixed compensation payment for each overdue invoice. The amount depends on the size of the debt:
£40
Debts up to £999.99
£70
Debts £1,000 to £9,999.99
£100
Debts £10,000 and above
This compensation is per invoice, not per client. If a client has three overdue invoices of £500 each, you can claim £40 x 3 = £120 in compensation fees — plus interest on each.
When Does Interest Start Running?
Interest begins the day after the agreed payment date. If no payment terms were agreed:
- For goods: 30 days after delivery or the date the buyer is notified of the amount owed (whichever is later)
- For services: 30 days after the invoice date or the completion of the service (whichever is later)
Important Note on Payment Terms
Payment terms longer than 60 days can be challenged as "grossly unfair" under the Act. If a large client imposes 90-day or 120-day payment terms, you may have grounds to claim interest from day 60 onwards regardless of what the contract states.
Do You Need to Warn the Client First?
No. The right to statutory interest arises automatically once the payment is late. You do not need to send a warning, a formal demand, or any specific notice. However, in practice, it is professional and effective to:
- Include your late payment terms on every invoice
- Reference the Act in your first formal chasing email
- State the specific interest and compensation amounts you intend to claim
Can the Client Contract Out of the Act?
A client cannot remove your right to statutory interest entirely. They can substitute a "substantial remedy" in the contract (for example, their own late payment clause), but only if it is fair and reasonable. Any term that attempts to exclude or limit your late payment rights and is not a genuine substantial remedy is void.
How to Actually Claim Interest
Here is a practical step-by-step process:
Step 1: Calculate the amount
Work out the interest and compensation fee using the formula above or our free calculator.
Step 2: Send a formal notice
Email the client citing the Late Payment of Commercial Debts (Interest) Act 1998 and stating the interest and compensation you are claiming.
Step 3: Issue an updated invoice
Send a revised or supplementary invoice showing the original amount, interest accrued, and the compensation fee.
Step 4: Escalate if needed
If they still do not pay, you can pursue the full amount (including interest and compensation) through the Small Claims Court for debts under £10,000.
Frequently Asked Questions
Does this apply to sole traders?
Yes. The Act applies to all commercial debts between businesses, including sole traders, partnerships, LLPs, and limited companies. It does not apply to consumer debts (B2C).
Can I claim interest on old invoices?
Yes, provided the debt is not statute-barred. In England, Wales, and Northern Ireland, the limitation period is 6 years. In Scotland, it is 5 years. You can claim interest on any qualifying invoice within that window.
Is claiming interest bad for client relationships?
Mentioning statutory interest in a formal notice is often enough to prompt payment — most clients pay quickly once they realise you know your rights. You can always waive the interest once the principal is paid, as a goodwill gesture. The important thing is knowing you have the right.
Key Takeaways
- You have an automatic legal right to charge 8% + BoE base rate on overdue B2B invoices
- Compensation fees of £40, £70, or £100 apply per invoice based on debt size
- No prior warning is required — the right exists from the day after payment is due
- Clients cannot contract out of the Act without providing a genuine substantial remedy
- Simply mentioning the Act in your chasing correspondence often accelerates payment