How do I claim statutory interest on a late commercial invoice?
Send a written demand to the late-paying customer that sets out the original invoice, the due date and the number of days overdue. Show the interest calculation at 8% above the Bank of England base rate, plus the fixed compensation for the size of the debt, which is £40, £70 or £100 depending on the invoice value. Add any reasonable debt recovery costs that exceed that compensation. State clearly that the amount is claimed under the Late Payment of Commercial Debts (Interest) Act 1998. You can usually claim retrospectively, because the normal limitation period for a contract debt is six years.
What this means for your business
In practice, you write to the customer once the payment is overdue and set everything out so there is nothing to argue about. List the invoice number, the date it fell due, the number of days late, and the interest calculated daily on the unpaid balance. Add the fixed compensation sum for that debt size and any reasonable recovery costs, such as tracing or solicitor letters, that go beyond it.
Quote the Act by name so the customer knows you are using a statutory right rather than asking a favour. If you use invoice finance, check your agreement first, because the funder may own the debt and control collection. Keep copies of the contract, proof of delivery and every chaser you send, as these decide most disputes.
Key points
- The interest rate is set by reference to the Bank of England base rate, with the statutory uplift described on GOV.UK.
- Fixed compensation is a set sum per overdue invoice, and the amount depends on the size of the debt.
- Reasonable recovery costs above the fixed compensation can also be claimed under the 1998 Act.
- Interest accrues from the day after the due date, so a prompt written demand keeps the figure accurate.
- Older invoices can still be pursued, as the limitation period for simple contract debts is six years.
Common pitfalls
The most common mistake is using the wrong start date for interest, so check whether the contract set a payment term or the statutory default applied. Another is demanding an invented sum for compensation rather than the fixed amount the Act allows. Do not apply the Act to consumer sales, as it covers business to business contracts only.
Check whether your contract contains a different remedy that is substantial, because that can replace statutory interest. Finally, if the invoice has been assigned to a funder, chasing the customer yourself without agreement can breach your facility terms and confuse the customer about who to pay.
Related questions
Can I charge statutory interest if my invoice terms say nothing about late payment?
Yes, in most business to business sales the right applies automatically, so your terms do not need to mention it. Stating it in your terms and on invoices does make it harder for the customer to dispute and discourages late payment in the first place.
Does claiming statutory interest damage the relationship with a customer?
It can if it comes without warning, so many businesses send a polite reminder first and then a formal demand. Referring calmly to the Act and attaching a clear calculation usually reads as professional, and it often prompts payment without further action.
Who claims statutory interest if my invoices are financed?
That depends on your agreement. With factoring the funder normally controls collections and may decide whether to charge interest, while with confidential invoice discounting you usually chase the customer yourself. Check your facility terms and speak to your provider before sending a demand.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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