Can I charge interest on late payments?

The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts for goods or services where both you and your customer are acting in the course of a business (section 2 of the Late Payment of Commercial Debts (Interest) Act 1998). It applies across the UK, and you don't need a clause in your contract to rely on it.

The rate is 8% a year above the reference rate, which is the Bank of England base rate in force on:

• 31 December, for debts where interest starts running between 1 January and 30 June
• 30 June, for debts where interest starts running between 1 July and 31 December

The rate stays fixed for the life of that debt. Base rate has been 3.75% since 18 December 2025, so statutory interest is 11.75% for any debt where interest started running in 2026. The next reference date is 31 December 2026.

It is simple interest, not compound. On a £5,000 invoice, that's about £587.50 a year, or £1.61 a day.

Under section 4 of the Late Payment of Commercial Debts (Interest) Act 1998, interest runs from the day after the agreed payment date. If no date was agreed, it runs once 30 days have passed from the later of delivering the goods or services and the customer receiving your invoice.

Long payment terms have a limit. If you agreed terms longer than 60 days with a business customer, interest starts after day 60 anyway, unless the longer term is not grossly unfair to you. Tighter limits apply where the customer is a public authority.

On top of interest, section 5A of the Late Payment of Commercial Debts (Interest) Act 1998 gives you a fixed sum for each late payment:

• debt under £1,000: £40
• £1,000 to £9,999.99: £70
• £10,000 or more: £100

If your reasonable costs of recovering the debt are higher, you can claim the difference. You can only claim the fixed sum once per payment.

You and your customer can agree your own late payment rate instead. But under sections 8 and 9 of the Late Payment of Commercial Debts (Interest) Act 1998, a clause that excludes or waters down statutory interest is void unless the contract still gives a substantial remedy for late payment.

A remedy counts as substantial unless it is insufficient to compensate the supplier or deter late payment, and it wouldn't be fair or reasonable to let it replace statutory interest. Relevant factors include the benefits of commercial certainty, each side's bargaining strength, whether one side imposed the term through its standard terms, and whether the supplier got something in return for agreeing to it.

The Commercial Payments Bill, before Parliament since May 2026, would make statutory interest mandatory and cap most payment terms at 60 days. It is not yet law and no start date has been set.

Statutory interest doesn't apply when you sell to consumers. You can charge a consumer interest only if your contract clearly provides for it, and the term must be fair. An unfair term doesn't bind the consumer under section 62 of the Consumer Rights Act 2015. If you sue a consumer in the county court, you can usually ask for interest at 8% a year.

Interest isn't added automatically. To claim it, send an updated invoice or statement showing the interest and any fixed compensation, how you worked them out, and the date they run to. You can also include them in a letter before action or court claim. Many businesses waive interest to keep a good client, which is your choice.