How to calculate late payment interest in the UK (with examples)
62.6% of invoices sent by UK small businesses are paid late. That is not a rounding error. Nearly two-thirds of the money owed to SMEs arrives after the agreed payment date, and the total amount sitting unpaid across UK businesses at any given time is roughly £20 billion.
If you are a plumber waiting 60 days for a £3,000 invoice to be paid, that is your mortgage payment floating in someone else's bank account. The good news: UK law gives you the automatic right to charge interest on late commercial payments. Most small businesses never use it. After reading this, you will know exactly how.
Quick answer
The statutory late payment interest rate in the UK is the Bank of England base rate plus 8%. With the current base rate at 3.75%, that means 11.75% per year on the outstanding amount. You can also claim fixed compensation of £40, £70, or £100 depending on the size of the debt. Use our late payment calculator to work out exactly what you are owed.
Your legal right to charge interest
The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business the statutory right to charge interest on overdue invoices. This applies to all business-to-business (B2B) transactions. You do not need to include a late payment clause in your contract, though doing so makes enforcement easier.
There are two key conditions:
- Both parties must be acting in the course of business (it does not apply to consumer transactions)
- The payment must be late according to the agreed payment terms, or after 30 days if no terms were agreed
Full details are on gov.uk's late commercial payments page.
The current statutory interest rate
The formula is dead simple:
Statutory interest rate = Bank of England base rate + 8%
As of March 2026, the Bank of England base rate is 3.75%. So the statutory interest rate is 3.75% + 8% = 11.75% per annum.
Which base rate applies?
This trips people up. The base rate that applies to your late payment is not necessarily today's rate. It depends on when the debt became overdue:
| When the debt became overdue | Base rate used |
|---|---|
| 1 January to 30 June | The rate on 31 December of the previous year |
| 1 July to 31 December | The rate on 30 June of that year |
So if an invoice became overdue on 15 March 2026, you use the Bank of England base rate as it stood on 31 December 2025. If it became overdue on 20 August 2026, you use the rate from 30 June 2026.
In practice, the base rate does not swing wildly between reference dates, so the difference is usually small. But if you are claiming in court, using the wrong rate gives the other side an easy objection.
How to calculate late payment interest: step by step
Here is the formula broken down:
Step 1: Work out the annual interest: Invoice amount x 0.1175
Step 2: Work out the daily interest: Annual interest / 365
Step 3: Multiply by the number of days late
Worked example: plumber's overdue invoice
You are a plumber. You sent a £2,400 invoice with 14-day payment terms on 1 February 2026. The customer finally pays on 15 March 2026 - that is 28 days late (42 days total minus 14 days payment terms).
| Step | Calculation | Result |
|---|---|---|
| Annual interest | £2,400 x 11.75% | £282.00 |
| Daily interest | £282.00 / 365 | £0.77 |
| Interest for 28 days | £0.77 x 28 | £21.64 |
| Fixed compensation | (debt £1,000 - £9,999) | £70.00 |
| Total claim | £91.64 |
That £91.64 is money the law says you are owed, on top of the original invoice amount. Not bad for a 10-minute exercise.
Worked example: electrician's large commercial job
You completed a commercial rewire for £12,500 with net 30 payment terms. The invoice was dated 1 January 2026. Payment arrives on 1 April 2026 - that is 60 days overdue.
| Step | Calculation | Result |
|---|---|---|
| Annual interest | £12,500 x 11.75% | £1,468.75 |
| Daily interest | £1,468.75 / 365 | £4.02 |
| Interest for 60 days | £4.02 x 60 | £241.37 |
| Fixed compensation | (debt £10,000+) | £100.00 |
| Total claim | £341.37 |
£341 for the inconvenience of waiting two months for your money. This is why the late payment legislation exists.
Fixed compensation amounts
On top of interest, you can claim a fixed sum as compensation for the cost of recovering the debt. The amount depends on the size of the original debt:
| Debt amount | Fixed compensation |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 and above | £100 |
This is per invoice, not per customer. If a customer owes you three separate overdue invoices of £800 each, you can claim £40 compensation on each one - £120 total - plus interest on each.
If your actual debt recovery costs exceed the fixed compensation (e.g. solicitor's fees), you can claim reasonable costs instead, but you will need to justify them.
Contractual vs statutory interest
You can include your own interest rate in your contracts and terms of business. Many tradespeople add a clause like "Interest of 2% per month will be charged on overdue invoices." That is 24% per year, which is significantly higher than the statutory 11.75%.
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However, there is a catch. If a court decides your contractual rate is not a "substantial remedy" for late payment - meaning it is set unreasonably low as a token gesture - the statutory rate can override it. This rarely matters in practice because most contractual rates are set higher than the statutory rate, not lower.
If your contract does not mention late payment interest at all, the statutory rate applies automatically. You do not need to have agreed it in advance.
How to actually claim the interest
There are three approaches, escalating in severity:
1. Add it to a reminder. Send a polite but firm email stating that the invoice is overdue and that statutory interest is accruing at 11.75% per annum. Include the daily amount. This alone gets most invoices paid within days. Nobody wants to watch a debt grow.
2. Issue a separate interest invoice. Calculate the interest and compensation owed, and send a new invoice for that amount, referencing the original overdue invoice number. This formalises the claim and shows you are serious.
3. Take legal action. For debts under £10,000, you can use the small claims court (Money Claims Online). The court fee ranges from £35 to £455 depending on the claim amount, and you can add the fee to your claim. Above £10,000, you will likely want a solicitor.
In practice, most tradespeople use option 1. Mentioning the specific daily interest amount in a reminder email is remarkably effective. When a customer reads "interest of £4.02 per day is now accruing on this overdue invoice," the psychological impact is far stronger than vaguely threatening legal action.
Preventing late payments in the first place
Claiming interest is your right. But getting paid on time is better. Here is what actually works:
- Invoice immediately. Send the invoice the day the job is done, not a week later. Every day you delay invoicing is a day added to your payment timeline.
- Offer multiple payment methods. Bank transfer, card payment, even a payment link in the invoice. The fewer barriers to payment, the faster it arrives.
- Set short terms. 14 days instead of 30 for domestic customers. There is no obligation to give people a month.
- Automate reminders. A polite nudge 3 days before the due date, another on the due date, and a firmer one 7 days after. InvoiceAdept handles this automatically.
- Take deposits. For jobs over £500, a 50% deposit protects you from non-payment on the balance.
Frequently asked questions
Can I charge late payment interest to a private individual?
The statutory right to charge interest under the Late Payment of Commercial Debts Act only applies to B2B transactions - both parties must be acting in the course of business. For private customers (homeowners, for example), you can only charge interest if it is written into your terms and conditions, and the rate must be fair under consumer protection law.
Does the interest compound?
No. Statutory late payment interest is simple interest, not compound. It accrues on the original invoice amount only, not on previously accrued interest. This keeps the calculation straightforward.
Will claiming interest damage my customer relationship?
Possibly, but consider this: a customer who routinely pays 30-60 days late is already damaging your business. Mentioning that interest is accruing often prompts faster payment without you actually having to collect it. The threat is usually more effective than the claim.
Is there a time limit on claiming late payment interest?
Yes. Under the Limitation Act 1980, you have 6 years to claim late payment interest from the date the interest became due. After 6 years, the claim is statute-barred.
Stop leaving money on the table. If your invoices are paid late, you are legally owed interest and compensation. Use our late payment interest calculator to work out exactly what a slow-paying customer owes you, and start including late payment terms on every invoice you send through InvoiceAdept.
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