Late payment interest (UK): how to work it out and claim it from a business customer

The job's done. The invoice went out weeks ago. The money still isn't in your account.

If your customer is a business, the law lets you charge late payment interest on that invoice. You don't need it in your contract. It's called statutory interest, and it's 8 per cent a year on top of the Bank of England base rate.

In short

• Any business that pays you late owes you interest, under the Late Payment of Commercial Debts (Interest) Act 1998.
• The rate is 8 per cent plus the base rate. For any business invoice that went late in 2026, that's 11.75 per cent a year.
• Work it out as: invoice total x 11.75 ÷ 100 ÷ 365 x days late.
• You can add a fixed sum of 40, 70 or 100 pounds on top, depending on the size of the debt.
• It doesn't cover homeowners. Only business customers.

What is late payment interest?

Late payment interest is money a business customer owes you, by law, for paying your invoice late. The law adds it to every business contract for goods or services, whether you wrote it in or not.

The law behind it is the Late Payment of Commercial Debts (Interest) Act 1998. Most people just call it "the Late Payment Act".

It's simple interest. That means you charge interest on the invoice amount only, never interest on the interest.

It covers the whole UK: England, Wales, Scotland and Northern Ireland.

Who can you charge it to?

Only other businesses. The Act applies when both you and your customer are acting "in the course of a business".

That includes:

• a main contractor who hires you as a subbie;
• a developer, landlord company or shop owner;
• a council or other public body.

It doesn't cover a homeowner paying for their own kitchen or extension. We cover what you can do there in Common questions below.

Watch out for one thing. If your contract sets its own interest rate for late payment, you claim that rate instead. You can't have both.

A contract can only replace statutory interest with a fair, real remedy for late payment. The Act calls this a "substantial remedy".

A tiny rate buried in the main contractor's terms may not count. If a lot of money rides on that, get the contract checked.

When does an invoice count as late?

It depends on what you agreed.

So if you never agreed a date, the clock starts 30 days after your invoice lands.

On construction work, payment notices and pay less notices also affect what's due and when. Our guide to payment and pay less notices explains how they work.

What is the late payment interest rate right now?

It's 8 per cent plus the Bank of England base rate.

But it isn't today's base rate. It's the base rate on one of two fixed dates.

Rates are as of October 2026. The base rate was 3.75 per cent on 30 June 2026 and was still 3.75 per cent after the Bank's September 2026 decision.

The rate is fixed on the day the invoice goes late. If the base rate moves after that, your rate for that invoice stays the same.

How do you work out late payment interest?

Use the full invoice total, including any VAT. Then follow 4 steps.

1. Get the yearly interest. Invoice total x 11.75 ÷ 100.
2. Get the daily interest. Divide that by 365.
3. Count the days late. Start the day after the payment date. Stop the day they pay.
4. Multiply. Daily interest x days late.

Here's a worked example. Say a shopfitter finishes a café fit-out and invoices the café's company £3,000. The café pays 45 days late.

1. Yearly interest: 3,000 x 11.75 ÷ 100 = 352.50 pounds.
2. Daily interest: 352.50 ÷ 365 = about 97p a day.
3. Days late: 45.
4. Interest: 352.50 x 45 ÷ 365 = 43.46 pounds.

Add the fixed compensation for a debt that size (70 pounds). The shopfitter can claim 113.46 pounds on top of the £3,000.

Here's a quick table for a few invoice sizes at 11.75 per cent:

Don't want to do the sums? The Small Business Commissioner has a late payment interest calculator on its website. The link is in Sources.

What fixed compensation can you add?

On top of the interest, the Act gives you a fixed sum for the hassle of chasing. It depends on the size of the debt.

You can charge it once for each payment, not every time you send a reminder.

If chasing costs you more than the fixed sum, you can also claim your reasonable extra costs of recovering the debt. Keep the receipts.

How do you claim it?

Send the customer a new invoice that adds the interest and the fixed sum.

Keep it calm and factual. Show your working, so there's nothing to argue about.

Copy this and fill in the brackets:

Subject: Invoice [number]: late payment interest and compensation

Dear [name],

Invoice [number] for £[amount], dated [date], was due for payment on [due date]. We haven't received it yet.

Under the Late Payment of Commercial Debts (Interest) Act 1998, we're entitled to statutory interest and fixed compensation. As of [today's date], the amount due is:
Original invoice: £[amount]
Interest at [rate] per cent a year for [number] days: £[interest]
Fixed compensation: £[fixed sum]
Total now due: £[total]

Interest keeps adding at £[daily amount] a day until the invoice is paid. Please pay to [bank details] by [date]. If there's a problem with the invoice, ring me on [number] so we can sort it.

Thanks,
[your name], [business name]

Send it in writing, by email or post, and keep a copy.

Should you always charge it?

That's your call. The right to it is there either way, and you can usually claim it for up to 6 years after the debt went late (5 years in Scotland).

You might claim it on every late invoice. Or you might save it for the customer who's late again and again. Either way, a line on your invoices saying you charge statutory interest tells customers you know your rights.

Two things to know first:

• Disputes. The Small Business Commissioner says you can't charge interest and compensation on an invoice paid late because of a dispute. Sort out the dispute first.
• The bigger picture. If a customer simply won't pay, interest alone won't get your money back. You may need a formal letter, then a court claim. Our guide to chasing an unpaid invoice takes you through each step.

Is the law about to change?

Possibly. A new law, the Commercial Payments Bill, went before Parliament in May 2026.

The government says it would make late payment interest mandatory and cap payment terms at 60 days for big firms paying smaller suppliers. It would also ban holding back retention on construction contracts.

When we checked in October 2026, it was still a Bill going through the House of Lords. It isn't law yet. Until it is, the 1998 rules in this guide still apply.

Where Nexley fits

Late payment interest only helps if someone actually chases the money. Nexley is AI software for UK tradespeople and small construction firms. It works through WhatsApp.

It drafts the invoice the day the job finishes. Then it chases unpaid invoices on a schedule, in a tone you'd be happy to have sent.

It works with Xero, QuickBooks and Sage. You stay in charge: Nexley drafts, and you sign off before anything goes. See how getting paid on time works, or try it free for 7 days.

Common questions

Can I charge late payment interest to a homeowner?

Not under the Late Payment Act, which only covers business customers. You can only charge a homeowner interest if they agreed to it in your terms before the job started. The term must also be fair.

Under consumer law, a term that makes a customer pay a disproportionately high sum for breaking the contract may be unfair. Keep any rate reasonable and show it clearly on your quote.

Is this the same as HMRC late payment interest?

No. A lot of searches for "late payment interest" are about tax.

HMRC charges its own interest when you pay tax late, like VAT or Self Assessment, at its own rate. This guide is about interest your business customers owe you. For HMRC's rates, check GOV.UK or ask your accountant.

Do I need late payment interest in my contract or terms?

No. The Act adds it to every business contract automatically.

Still, it helps to add a line to your quotes and invoices. For example: "Statutory interest and compensation will be charged on late payments." It reminds the customer before any problem starts.

Can a main contractor's terms stop me claiming interest?

Only if they give you a fair alternative. A term that just removes late payment interest is void, unless the contract has another "substantial remedy" for late payment.

Whether a remedy is substantial depends on things like who had the stronger hand in agreeing the terms. If the main's terms offer a tiny rate or nothing at all, ask a solicitor before you accept that.

Sources

This page is general guidance, not legal advice. For a large or disputed sum, get your contract checked before you claim.

• GOV.UK: Late commercial payments, charging interest and debt recovery (gov.uk)
• GOV.UK: Interest on late commercial payments (gov.uk)
• GOV.UK: Claim debt recovery costs on late payments (gov.uk)
• Late Payment of Commercial Debts (Interest) Act 1998 (legislation.gov.uk)
• Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 (legislation.gov.uk)
• Bank of England: Bank Rate (bankofengland.co.uk)
• Bank of England: Bank Rate history (bankofengland.co.uk)
• Prescription and Limitation (Scotland) Act 1973, section 6 (legislation.gov.uk)
• Small Business Commissioner: late payment interest calculator (smallbusinesscommissioner.gov.uk)
• Small Business Commissioner: interest calculator guidance (smallbusinesscommissioner.gov.uk)
• UK Parliament: Commercial Payments Bill (bills.parliament.uk)
• Consumer Rights Act 2015, Schedule 2: terms that may be unfair (legislation.gov.uk)
• GOV.UK: HMRC interest rates for late and early payments (gov.uk)