Late payment interest and compensation
When a business pays you late, the law adds interest and a fixed compensation sum to the debt. Consumer debts follow different rules. This page explains both and includes a calculator.
Who the Late Payment Act covers
The Late Payment of Commercial Debts (Interest) Act 1998 applies to contracts for the supply of goods or services where the supplier and the customer are both acting in the course of a business. That includes limited companies, partnerships and sole traders buying for their business. It does not apply to private customers, to consumer credit agreements, or to contracts that operate as a mortgage, pledge, charge or other security.
The right to interest is an implied term of the contract (section 1), so it usually applies even if the quote and the invoice did not mention it. If the contract sets its own remedy for late payment, and that remedy is substantial, the contract applies instead of statutory interest (section 8).
When interest starts
- A payment date was agreed: interest runs from the day after that date.
- No payment date was agreed: the debt becomes late 30 days after the later of the day the goods or services were supplied and the day the customer was given notice of the amount, which is usually the invoice.
- A business customer agreed a payment date more than 60 days away: the Act can treat the debt as due at the end of the 60 days, unless the longer term is not grossly unfair to the supplier. Shorter limits apply where the customer is a public authority.
The rate
Statutory interest is simple interest at 8% a year over the Bank of England base rate, which the Bank calls Bank Rate. The base rate used is the one in force on a fixed reference date before interest starts, and it does not change for that debt afterwards, even if the base rate moves.
| If interest starts between | Use the base rate in force on |
|---|---|
| 1 January and 30 June | 31 December of the previous year |
| 1 July and 31 December | 30 June of the same year |
Source: the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, article 4. Daily interest is the debt multiplied by the annual rate, divided by 365. Interest to date is the daily interest multiplied by the number of days the debt has been overdue.
Fixed compensation and recovery costs
Once statutory interest starts to run, the supplier is also entitled to a fixed sum under section 5A of the Act. It is added once for each late payment, on top of the interest.
| Amount of the debt | Fixed sum |
|---|---|
| Under £1,000 | £40 |
| £1,000 to under £10,000 | £70 |
| £10,000 or more | £100 |
If the supplier's reasonable costs of recovering the debt are more than the fixed sum, the supplier can also claim the difference (section 5A(2A)). What is reasonable depends on the facts, and if it is disputed in a claim the court decides.
Consumer customers
The Late Payment Act does not apply when the customer is a private individual. There is no fixed compensation sum, and interest on a consumer debt is available only:
- if the contract provides for it, in which case the term must be fair and transparent under Part 2 of the Consumer Rights Act 2015; or
- in a county court claim, at the court's discretion under section 69 of the County Courts Act 1984. Claimants commonly ask for simple interest at 8% a year, which is the rate gov.uk guidance uses for most debts. The court decides whether to award it and at what rate.
Interest under section 69 is not awarded for any period in which the debt already carries interest, for example under the contract.
Calculator
Enter the details of one invoice. The result is a guide, not a demand. Check the dates against the contract and the invoice before relying on it.
What we do
- Check whether the Act applies, and the date interest started
- Work out interest, fixed compensation and any reasonable recovery costs, invoice by invoice
- Set them out correctly in the formal demand and the letter before claim
- Show the calculation in the statement of account, so the debtor can check it
What we do not do
- Add statutory interest or fixed compensation to consumer debts
- Claim interest twice for the same period, or add charges that neither the contract nor the law allows
- Collect debts due under credit or hire agreements
Accuracy gives the claim its force
A demand that shows the rate, the reference date, the number of days and the resulting sum, and cites section 5A for the fixed compensation, is hard to argue with. An inflated or vague figure invites a dispute and weakens the rest of the letter.
Common questions
My invoice did not mention late payment interest. Can I still claim it?
From a business customer, usually yes. The Act makes statutory interest an implied term of the contract, so it applies unless the contract itself provides a substantial remedy for late payment.
Does the fixed sum apply to every overdue invoice?
It can be claimed once for each late payment. Where a job was invoiced in stages, we look at when each payment fell due before adding a fixed sum for it.
Which base rate should I enter?
The rate in force on the reference date in the table above. The calculator shows that date once you enter the due date. The Bank of England publishes past rates on its Bank Rate page.
Can I charge interest to a homeowner I did work for?
Not under the Late Payment Act. You can charge interest if your terms provided for it and the term is fair, or ask for it in a county court claim, where the court decides. See credit control for setting up terms that cover this.
Our status
Appeal Specialists is an independent consultancy, not a law firm. We are not solicitors or barristers and we are not regulated by the Solicitors Regulation Authority or any other legal regulator, so you cannot complain about us to the Legal Ombudsman.
We provide non-reserved legal services only. We do not conduct litigation, file or serve court documents, or accept service of court documents for you. Where the law allows, we can speak for you at a small-claims hearing or a tribunal, but only with your agreement and, at small-claims hearings, only if you attend.
What you tell us is not protected by legal professional privilege. We never hold your money. We work on matters in England and Wales only. We do not guarantee any outcome.
All correspondence by email
We deal with everything in writing, so every point and every deadline is on the record. If you are replying to a letter from us, please quote our reference.