Can a business charge statutory late payment interest on overdue invoices when using invoice finance?
Under the Late Payment of Commercial Debts Act 1998, businesses have the right to charge interest on overdue B2B invoices at 8 percent above the Bank of England base rate, plus a fixed compensation amount. When using invoice finance, the right to charge this interest technically passes to the factor or lender once the debt is assigned, though in practice many providers do not exercise this right as a matter of course. Borrowers should check their facility agreement to understand who holds the right to claim late payment interest and compensation during the life of the facility.
What this means for your business
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses are entitled to charge statutory interest at 8 percent above the Bank of England base rate on overdue business-to-business invoices, along with a fixed compensation amount that ranges from 40 to 100 pounds depending on the debt size. When a business uses invoice finance, the receivables are typically assigned to the funder, which means the legal right to pursue late payment interest and compensation transfers with the debt. In practice, most invoice finance providers do not routinely chase this statutory interest on behalf of clients, meaning the benefit is often lost entirely. SMEs should understand their facility agreement clearly so they know whether the funder, or the borrowing business, retains the ability to claim these additional amounts during the life of the arrangement.
Key points
- The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses the statutory right to charge 8 percent above the Bank of England base rate on overdue B2B invoices.
- A fixed compensation amount of between 40 and 100 pounds can also be claimed per overdue invoice, depending on the value of the debt.
- When invoices are assigned to an invoice finance provider, the legal right to claim late payment interest generally passes to that provider along with the debt.
- Many invoice finance providers do not exercise the right to charge statutory interest as a standard part of their collections process.
- Businesses should review their facility agreement carefully to confirm who holds the right to claim late payment interest and compensation, and under what circumstances.
Common pitfalls
A common mistake is assuming that the right to charge statutory late payment interest remains with the business after invoices have been assigned to a funder. In most invoice finance arrangements, that right transfers automatically with the debt, and if the provider does not pursue it, it is effectively lost. Businesses that factor invoices may also find their debtor relationships are managed by the funder, reducing their ability to raise late payment claims directly. Always review the facility agreement before signing, and if recovering statutory interest is commercially important to your business, raise this explicitly with your provider at the outset.
Related questions
Does the Late Payment of Commercial Debts Act apply to all invoices funded through invoice finance?
The Act applies to qualifying business-to-business transactions regardless of whether the invoice has been funded. However, once an invoice is assigned to a funder under a disclosed or undisclosed arrangement, it is the assignee who legally holds the right to pursue statutory interest, not the original business that raised the invoice.
Can I negotiate with my invoice finance provider to retain the right to claim late payment interest?
It is worth raising this point before you sign a facility agreement, as some providers may be willing to include a specific clause addressing how late payment interest is handled. There is no standard industry-wide position on this, so the terms will vary between providers and facilities.
What is the fixed compensation amount I can claim under the Late Payment Act, and does it apply when using invoice finance?
The fixed compensation under the Act is 40 pounds for debts under 1,000 pounds, 70 pounds for debts between 1,000 and 9,999.99 pounds, and 100 pounds for debts of 10,000 pounds or more. As with the interest element, the right to claim this compensation typically passes to the invoice finance provider upon assignment of the debt.
Director, Best Business Loans Ltd
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 3 July 2026