Late Invoice Payment Interest in the UK: Rules & How to Charge

Late payments are one of the biggest cash flow problems for UK small businesses. If a client pays late, you are legally entitled to charge interest and compensation — but most businesses either don’t know the rules or avoid enforcing them.

In the UK, you can typically charge 8% above the Bank of England base rate on overdue invoices, plus fixed compensation fees. This guide explains exactly how the rules work, when you can apply charges, and how to calculate what you’re owed.

What Are the UK Late Payment Rules?

Late payment rules for business-to-business transactions are set under the Late Payment of Commercial Debts legislation. These apply when both parties are businesses and no alternative terms override them.

• Statutory interest: 8% + Bank of England base rate
• Applies automatically unless contract terms state otherwise
• Interest is calculated daily on the overdue amount
• You can also charge fixed compensation fees

When Do Late Payment Charges Start?

Interest typically starts from the day after the payment due date. If no payment terms were agreed, the default is usually:

• 30 days after the invoice date
• or 30 days after delivery of goods/services

How Much Interest Can You Charge?

The statutory formula is straightforward:

For example, if the base rate is 5%, your total annual interest rate becomes 13%. This is applied daily to the overdue balance.

To work out exact figures quickly, use the late invoice interest calculator rather than doing manual daily calculations.

Fixed Compensation Fees You Can Add

In addition to interest, you can charge fixed fees to cover recovery costs:

These are fixed amounts per invoice, not per day. You can also claim additional reasonable recovery costs if your expenses exceed these amounts.

Example: Late Payment Calculation

Assume:

• Invoice: £5,000
• Payment 30 days late
• Interest rate: 13%

Daily interest:

£5,000 × 13% ÷ 365 ≈ £1.78 per day

30 days late:

£1.78 × 30 ≈ £53 interest + £70 fee = £123 total extra

This is enough to change behaviour over time — if you actually apply it.

Should You Include Late Payment Terms?

Yes. While statutory rights exist, relying on them alone is weaker than having clear terms upfront.

What to Include

• Payment terms (e.g. 14 or 30 days)
• Interest rate on overdue invoices
• Statement referencing statutory rights
• Late fees or admin charges

This reduces disputes and gives you a stronger position if enforcement becomes necessary.

When to Actually Charge Interest

Legally you can charge it. Commercially, you need to be selective.

Common Approach

• First offence: reminder only
• Repeat offenders: apply interest
• Chronic late payers: change terms or stop work

Most businesses don’t enforce interest consistently — which is why late payments persist.

Impact on Cash Flow and Pricing

Late payments affect more than timing. They distort pricing and margins.

If you’re regularly paid 30–60 days late, you’re effectively financing your clients.

Use tools like:

• profit margin calculator to adjust pricing
• break-even calculator to understand cash pressure
• Stripe fee calculator and PayPal fee calculator to account for payment costs

This gives a clearer picture of real profitability, not just invoice totals.

Common Mistakes to Avoid

• Not stating payment terms clearly
• Waiting too long to chase overdue invoices
• Never enforcing interest charges
• Assuming clients will pay on time without pressure
• Ignoring the cumulative impact on cash flow

Best Practices for Managing Late Payments

• Set clear payment terms upfront
• Invoice immediately after work completion
• Follow up before the due date
• Automate reminders where possible
• Use interest and fees selectively but consistently

Related Guides

Frequently Asked Questions

What interest can I charge on late invoices in the UK?

You can charge 8% plus the Bank of England base rate under statutory rules, unless your contract specifies a different rate.

When can I start charging late payment interest?

From the day after the invoice due date, or after 30 days if no terms were agreed.

Can I charge late payment fees as well as interest?

Yes, fixed fees of £40, £70, or £100 depending on invoice size can be added.

Do I need to include late payment terms on invoices?

No, but it is strongly recommended to reduce disputes and improve enforceability.

Can I refuse future work for late-paying clients?

Yes. You can set your own terms and choose not to work with unreliable payers.

Summary

• UK law allows 8% + base rate interest on late invoices
• Fixed compensation fees can also be added
• Charges apply automatically but work better with clear terms
• Most businesses underuse these rights
• Use the Late Payment Interest Calculator → to calculate exact amounts