Late payment is one of the most common cash-flow problems facing UK small businesses. You have done the work, sent the invoice, and then waited — sometimes for weeks past the agreed date — while your own bills still need paying. What many owners do not realise is that the law already gives you a remedy: for business-to-business invoices, you can usually charge statutory interest on the overdue amount, plus fixed compensation, without going near a courtroom.
This guide explains how that right works today, how to calculate what you are owed, how to ask for it without damaging the customer relationship, and what the pending Commercial Payments Bill would change.
What Is Statutory Interest?
Statutory interest is the interest you are entitled to charge when another business pays you late. It comes from the Late Payment of Commercial Debts (Interest) Act 1998 and applies to commercial transactions for goods or services where both sides act in the course of a business.
The rate is 8% per annum above the Bank of England base rate. It is simple interest, not compound, so it is calculated on the original invoice amount only, and it runs from the day after the payment was due until the debt is paid in full.
Two points matter in practice. First, the right is automatic: you need no contract clause, because the Act implies it for you. Second, a contract rate only replaces statutory interest if it is a “substantial remedy” for late payment — a token 1% buried in your terms is unlikely to count. If your terms say nothing about interest, statutory interest applies.
When does the clock start?
If you have agreed a payment date — for example, “within 30 days of the invoice date” — interest runs from the day after that date. If you have agreed no payment date at all, the law normally treats the debt as late 30 days after delivery, completion, or receipt of the invoice, whichever is latest. This is one reason clear payment terms matter: a vague arrangement leaves you arguing about when the debt even became overdue. If you are tightening up your paperwork, our guide to writing a supplier contract covers the clauses that prevent this kind of dispute.
The fixed compensation tiers
On top of interest, the Act entitles you to a fixed sum per late invoice to cover recovery costs:
- £40 for a debt under £1,000
- £70 for a debt of £1,000 to £9,999.99
- £100 for a debt of £10,000 or more
If your actual recovery costs are higher — for example, a debt-collection agency’s fees — you may also claim the reasonable additional costs. Keep receipts for anything you intend to claim.
A Worked Example: What £10,000 Paid 60 Days Late Is Worth
Take the government’s published illustration: a small business owed £10,000, paid 60 days after the agreed payment date, would be owed £10,293.15 in total — the original £10,000, plus £193.15 of interest, plus £100 of fixed compensation.
You can run the same calculation on your own invoices with this formula:
Interest = invoice amount × (Bank of England base rate + 8%) × (days late ÷ 365)
Before you calculate, check the current Bank of England base rate, because it moves over time and your interest figure moves with it. The Small Business Commissioner also provides a free online interest calculator worth using as a cross-check.
A practical tip: calculate interest and compensation per invoice, not per customer. If three invoices are late, you can claim the fixed compensation sum on each one — a detail that is often missed, and sometimes the part that finally prompts a slow payer to settle.
How to Claim Interest Without Losing the Customer
Knowing your rights and using them well are different skills. Most late payments come from disorganisation, cash-flow problems, or a disputed line item — not malice. The order below is designed to get you paid while keeping the relationship intact.
Step 1: Check your own paperwork first
Before you raise interest, confirm the invoice was correct, sent to the right person, and not subject to a genuine query. Nothing undermines a claim faster than demanding interest on an invoice the customer never received. If only one line is disputed, the undisputed balance should still have been paid on time.
Step 2: Send a polite reminder that mentions interest
Your first reminder should be friendly and factual: state the invoice number, the amount, the original due date, and the number of days overdue, and note that statutory interest and compensation now apply under the 1998 Act. Mentioning the right is often enough — customers who have been deprioritising your invoice often move it to the top of the pile once they realise delay now has a price.
Step 3: Send a formal statement of the amount owed
If the reminder does not produce payment, send a statement showing the calculation: the original amount, the interest accrued to date, the fixed compensation sum, and the new total. A customer who can see exactly how you reached the figure is far less likely to dispute it.
Step 4: Escalate proportionately
If the debt remains unpaid, your options are a formal letter before action, a debt-collection agency, the small claims track of the County Court, or — for larger or persistent cases — a complaint to the Small Business Commissioner. Court should be a last resort: it costs time and goodwill, and a negotiated payment plan including the interest is usually better. Keep a written record of every reminder, because that paper trail is your evidence if the matter ever goes further.
Preventing Late Payment in the First Place
Claiming interest is a remedy, not a strategy. The businesses that get paid on time do a few unglamorous things consistently well, and each one is cheaper than chasing a debt.
Set short, explicit payment terms. “Within 14 days of the invoice date” is enforceable; “payment on receipt” and “prompt payment” are arguments waiting to happen. Put terms in the contract or accepted quote before work starts, not only on the final invoice.
Invoice immediately and accurately. Every day between completing the work and sending the invoice is a day added to your wait. Invoice on completion, to the right contact, with any purchase order number.
Chase on day one, not day thirty. A polite check the day after the due date — “just confirming this is in your payment run” — catches administrative errors while they are still easy to fix. Waiting a month trains customers to treat your invoices as low priority.
Use staged payments for larger jobs. Deposits and milestone payments spread your risk and give you an early warning if a customer is struggling — if the first milestone slips, you find out before delivering the whole project.
Watch your cash-flow signals. When your average collection period creeps up, your cash conversion cycle lengthens and your working capital gets squeezed. Track those numbers monthly to spot a deteriorating payment pattern early — our guide to improving cash flow sets out the levers to pull when it does.
What the Commercial Payments Bill Would Change
The rules above are the law today, but significant reform is on its way. The Commercial Payments Bill was introduced in the House of Lords in May 2026, passed its third reading there on 20 October 2026, and is now before the House of Commons. It is not yet law, and is expected to take effect no earlier than 2027.
A 60-day maximum payment term. Business-to-business contracts would have to make payment due within 60 days, or 30 days where the customer is a public authority. Longer terms would simply be void, with strictly limited exemptions.
Mandatory statutory interest. Today, a larger customer can sometimes contract out of statutory interest by offering an alternative remedy. The Bill would remove that escape route: the 8% above base rate right would be implied into contracts and could not be excluded or watered down.
A price for late disputes. Under the Bill, a customer that raises a dispute late, or without enough detail, would owe the supplier a fixed sum — closing off the “query it on day 59” trick.
A stronger Small Business Commissioner. The Commissioner would gain powers to investigate poor payment practices, adjudicate disputes between small suppliers and larger customers outside court, and fine persistent late payers.
A phased ban on construction retentions. Retention clauses in construction contracts would be banned on a phased basis — significant for small subcontractors for whom retentions are a chronic source of late payment.
None of this changes what you can do today, and you should not wait for the Bill before enforcing your existing rights. But it does change how you should draft terms now: contracts with payment terms longer than 60 days, or clauses excluding statutory interest, will become unenforceable — plan to renegotiate before the new regime bites.
Key Takeaways
- Statutory interest on late business-to-business payments is 8% above the Bank of England base rate, plus fixed compensation of £40, £70, or £100 per invoice.
- Interest runs from the day after the agreed payment date, or after 30 days where no date was agreed.
- A contract rate only replaces statutory interest if it is a substantial remedy.
- Mention the right in your first reminder, show your calculation in writing, and escalate proportionately.
- The Commercial Payments Bill — 60-day terms, mandatory interest, stronger enforcement — is in the Commons and expected no earlier than 2027, but your existing rights apply right now.