How much late payment compensation can I charge on a UK invoice?
Flat compensation tiers under the Late Payment of Commercial Debts (Interest) Act: £40 for debts up to £999.99, £70 for debts £1,000 to £9,999.99, and £100 for debts £10,000 and above. Paid once per overdue invoice, on top of statutory interest and any reasonable debt-recovery costs. Compensation applies even on small overdue amounts.
What this means for your business
UK law lets a business add fixed compensation to any invoice a commercial customer pays late, on top of the debt itself. The amount depends on the size of the original invoice, not how many days it runs over. It applies automatically once payment is overdue against the agreed or default terms, and does not need to be written into the contract to take effect.
For a small or mid-sized supplier, this is a modest but real deterrent, and it stacks with statutory interest and reasonable recovery costs, so a single overdue invoice can end up costing the late-paying customer noticeably more than the original amount. It applies whether or not the supplier has actually incurred £40, £70 or £100 of real recovery cost.
Key points
- Compensation is £40 for debts up to £999.99, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more.
- The compensation is charged once per overdue invoice, not once per chase or reminder sent.
- It applies on top of statutory interest, which currently runs at 11.75% (8% above the Bank of England base rate of 3.75%, last changed 18 December 2025).
- The right applies even to very small overdue balances, so it is worth claiming on modest invoices too.
- If actual debt-recovery costs exceed the fixed compensation amount, the business can claim the reasonable difference as well.
Common pitfalls
The most common mistake is forgetting to charge the compensation at all, since it is not automatic on an invoice or statement unless a business actively adds it. Some suppliers wrongly assume it only applies to large invoices or long-standing debts, when it applies from the first day of late payment on any commercial invoice.
Others miscalculate the tier by using the invoice total rather than the outstanding balance, or try to charge it more than once per invoice. It is also worth remembering this only applies to business-to-business invoices, not consumer debts, and contract terms cannot remove the right, though they can occasionally extend the payment period itself.
Related questions
Can I charge both late payment compensation and statutory interest on the same invoice?
Yes, the fixed compensation and statutory interest are separate entitlements and can both be claimed on the same overdue invoice. Statutory interest is currently 11.75% (8% above the Bank of England base rate of 3.75%), calculated on the outstanding amount for the period it remains unpaid.
Does late payment compensation affect invoice finance eligibility or advance rates?
Compensation and interest charges are not usually treated as part of the assignable invoice value, so an invoice finance provider will typically fund against the original invoice amount rather than any added compensation. It is best to check with the specific provider, as treatment of these add-on charges can vary.
Do I need to mention late payment compensation in my terms and conditions to claim it?
No, the right exists under the Late Payment of Commercial Debts (Interest) Act regardless of whether it is mentioned in the contract. Setting it out in your terms simply makes customers aware upfront and can encourage earlier payment.
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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