The UK Late Payment of Commercial Debts Act

The Late Payment of Commercial Debts (Interest) Act 1998 (as amended) is the UK statute that lets businesses charge statutory interest, fixed compensation, and reasonable debt-recovery costs on commercial debts paid late. Statutory interest is 8 percentage points above the Bank of England base rate in force on the 30 June or 31 December before interest starts to run, currently 11.75% APR (BoE base rate 3.75% plus 8%). Fixed compensation of £40, £70 or £100 per overdue invoice depends on the size of the debt (GOV.UK; tiers in the table below). The Act applies as an implied term to every UK B2B contract where no other contractual remedy is set, and overrides contracts whose remedy is not 'substantial'. Claims can be made retrospectively for up to 6 years. This page is the canonical hub: read it first, then use the calculator, then pick the right enforcement route.

What the Act does

The Late Payment of Commercial Debts (Interest) Act 1998, amended materially by the Late Payment of Commercial Debts Regulations 2002 and 2013, gives UK businesses an automatic right to recover three things from a customer who pays late on a B2B contract:

1. Statutory interest at 8 percentage points above the Bank of England base rate, calculated daily from the day after the payment due date.
2. Fixed compensation once per overdue invoice, on the tiers in the table below.
3. Reasonable additional debt-recovery costs above the fixed compensation: solicitor letters, court fees, collection-agency fees, tracing fees, documented time spent chasing.

The current statutory rate

The reference base rate is the one in force on 30 June (for interest that starts to run between 1 July and 31 December) or 31 December (for interest that starts to run between 1 January and 30 June), under article 4 of the 2002 rate order. With BoE base rate at 3.75%, the current statutory rate is 11.75% per year. The rate fixed when interest starts to run is the rate that applies, even if base rate later moves. So a debt overdue when base rate was 5.25% locks in at 13.25% even if base rate falls back to 3.75% before the debt is paid. See UK statutory late payment interest rate for the live position and history.

Compensation tiers

Compensation is automatic on top of the statutory interest. You do not have to flag it on the original invoice. Reasonable additional debt-recovery costs above the compensation are recoverable if you can evidence them and they are proportionate to the debt.

Try the calculator

The fastest way to work out what you can claim on a specific overdue invoice: UK Late Payment Interest Calculator. Input the invoice value and days overdue; the tool gives you statutory interest, the appropriate fixed compensation and total recoverable in seconds.

Scope: what counts as a 'commercial debt'

The Act applies to any debt for goods or services supplied under a UK B2B contract: businesses, public-sector bodies, charities, partnerships, sole traders acting in trade. Excludes: consumer (B2C) debts, consumer credit agreements, and contracts intended to operate as a mortgage, pledge, charge or other security (section 2). Cross-border contracts must be governed by English, Welsh, Scottish or Northern Irish law to fall in scope.

Can a customer contract out?

Only by setting a contractual rate that is a 'substantial remedy' for late payment. A token contractual rate (1 to 3% per year) is not substantial and is void: the court substitutes the statutory rate of 8% above base. Rates close to commercial bank-lending rates are usually upheld. Practical advice: either explicitly invoke the Act in your contract terms, or set a contractual rate at or above the statutory rate. Avoid token rates: they cause unnecessary disputes and get replaced anyway.

How to claim in practice

1. Day 1 overdue: friendly chase email and phone call. Reference the Act in the email signature for awareness.
2. Day 30 overdue: formal demand listing original invoice value, days overdue, statutory interest accrued to date, the appropriate compensation tier, and total now due.
3. Day 45 to 60 overdue: letter before action with a 14-day deadline, meeting the Pre-Action Protocol for Debt Claims.
4. Day 60 to 75 overdue: escalate. Either file at Money Claim Online for a default CCJ, or issue a statutory demand (debts over £750 against a solvent debtor), or sell the invoice via invoice finance for cash now.
5. Day 90+ overdue: if still unpaid, consider writing off and reclaiming VAT bad-debt relief after 6 months. Statutory interest claim remains valid for 6 years retrospectively if the customer later pays.

When the Act will not solve your problem

The Act gives you the legal right to charge interest and compensation. It does not, by itself, force the customer to pay. If the customer is solvent and the debt is undisputed, statutory interest plus a letter before action is usually enough to get paid. If the customer is disputing the debt, you need a court ruling.

If the customer is insolvent, the Act is essentially irrelevant. And if cash today matters more than the principle, invoice finance gets you 80 to 95% of the invoice value within 24 hours and the right to chase passes to the financier.

The full UK late-payment hub

MarketInvoice runs a full UK hub on unpaid invoices and late payment. Use the canonical Act guide above to understand your rights, then route into the specific tool or process:

Reform watch: Fair Payment Code and SBC enforcement

Two complementary regimes sit alongside the Act. The voluntary Fair Payment Code (administered by the Small Business Commissioner) commits signatories to published payment-time targets. The mandatory Payment Practices Reporting regime under the Small Business, Enterprise and Employment Act 2015 requires large UK businesses (those exceeding two of £54m turnover, £27m balance sheet and 250 employees, from April 2025) to publish twice-yearly reports on gov.uk showing average days to pay and disputes. Together with the Act, the three regimes create a regulatory stack that protects UK suppliers from systematic late payment by large customers.

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