Late payment interest: what you can charge a business customer

Late payment interest is the interest you can add to an overdue invoice when another business pays you late for goods or a service. It comes from the Late Payment of Commercial Debts (Interest) Act 1998, which makes simple interest on a qualifying debt an implied term of covered contracts.

That means you do not need a clause in your terms to use it. GOV.UK says you can claim interest and debt recovery costs if another business is late paying for goods or a service. The right sits alongside your ordinary right to be paid, and it is separate from any interest HMRC charges on tax debts.

Capzy does not give legal advice. If a large or disputed invoice is involved, ask a solicitor before you send a demand.

You can charge statutory interest of 8% plus the Bank of England base rate a year on business to business debts. GOV.UK sets out the rate and tells you to look up the current and previous base rates on the Bank of England’s database.

The base rate moves, so the total rate moves with it. Use the base rate that applies to your debt and check it on the Bank of England’s website rather than relying on a figure in an article. The 8% on top does not change.

You cannot claim statutory interest if your contract already sets a different rate of interest. If you want a contractual rate to apply, agree it in writing before the work starts, because the contract term replaces the statutory one.

On top of interest you can claim a fixed sum for each late payment, set by the size of the debt, and reasonable costs each time you try to recover it.

GOV.UK says you can only charge the business once for each payment. The fixed sum is per late invoice, not per reminder. Reasonable recovery costs are a separate claim, so keep records of what you spend chasing the debt.

A payment is late once the agreed payment date has passed. If you have not agreed a date, the law says it is late 30 days after the customer gets the invoice, or 30 days after the goods or service are delivered if that is later.

If you do agree a date, GOV.UK says it must usually be within 30 days for public authorities or 60 days for business transactions. Businesses can agree longer periods for business deals if the terms stay fair.

Set the date in writing on the quote, contract and invoice. Our guide to payment terms covers how to word them, and the same dates feed straight into your cash flow forecast.

You work out a year of interest on the unpaid amount, divide it by 365 to get a daily figure and multiply by the days overdue. GOV.UK shows the same method in its own example.

GOV.UK also says to send a new invoice if you decide to add interest to the money you are owed, so the extra amount is on the record.

The rules cover business to business transactions, so they are not a route to interest from an individual consumer, and they do not replace a contract that sets its own rate.

• Contracts that already state a different interest rate
• Disputed invoices, where the customer says the work was not done or was faulty
• Sales to consumers, which fall under other rules
• Tax owed to HMRC, which has its own interest and penalty rules

GOV.UK does not say how the rules apply to every kind of business customer, such as sole traders. If you are unsure whether a customer is covered, check GOV.UK or ask a solicitor.

If a customer ignores the interest, escalate in steps: chase in writing, send a final demand, and only then consider a court claim or a statutory demand.

• Keep the contract, invoice, delivery proof and every chaser.
• State the amount, the interest and the fixed sum in the same letter.
• Set a clear deadline for payment.
• Take legal advice before a court claim, because costs and time add up.

Chasing a debt takes time you may not have when wages and tax are due. Our guide to cash flow problems covers the other levers, and the debtor days and creditor days measures show how long your customers really take.

You stop invoices going late by making the terms clear before the work starts and checking who you are selling to. Interest is a remedy after the damage, so prevention is cheaper.

• Agree the payment date in writing, and state any contractual interest rate and fixed charge up front.
• Send the invoice as soon as the work is delivered, with the due date clearly shown.
• Check a new customer’s payment record before you offer long terms.
• Diarise a chase for the day after the due date, not the end of the month.
• Watch how long customers actually take, using your debtor days, and adjust your forecast to match.

Some businesses accept that certain customers will always pay slowly, and fund the gap instead. That is a commercial choice, and it has a cost, so compare it with what slow payment costs you in lost time and missed opportunities.

A change has been proposed but is not yet law. The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026, and the rules above remain the current law.

The government announced these measures with the Bill:

• A 60-day cap on payment terms for large firms paying smaller suppliers
• Mandatory interest on late payments at 8% above the Bank of England base rate
• Powers for the Small Business Commissioner to investigate, adjudicate disputes and fine
• A ban on retention clauses in construction contracts
• Reporting duties for large companies that persistently pay late

Capzy is a credit broker, not a lender, and is paid by the lender. Charging interest does not put money in your account, so if slow payers leave a gap, we can introduce you to lenders that offer invoice finance and other working capital products. The lender directory shows who offers what.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. Our guide to working capital explains why a profitable business can still run short.