What is the UK Late Payment of Commercial Debts (Interest) Act 1998?
It is a UK law that lets a business charge interest when another business pays an invoice late. The interest is 8% a year above the Bank of England base rate. You can also claim a fixed sum of £40, £70 or £100 for each late payment, depending on its size, plus reasonable costs of chasing the debt (GOV.UK).
When an invoice counts as late
If you agreed a payment date, it is late after that date. If you did not agree one, GOV.UK says payment is late 30 days after the customer gets the invoice, or 30 days after you deliver the goods or service if that is later (GOV.UK). The Act only covers business-to-business deals, not sales to the public.
How much interest
The rate is 8% a year above the base rate. The base rate used is not today's rate: it is the rate on the last 30 June or 31 December before the debt became late (the 2002 rate order, article 4). It then stays the same until the debt is paid.
The Bank of England base rate is now 4% (since 5 November 2026), but it changed after 30 June 2026, so check the rate on that date before you work out the interest. Interest is worked out day by day on the amount owed.
The fixed sum and recovery costs
| Size of the debt | Fixed sum you can claim |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
Source: GOV.UK, claim debt recovery costs. You can charge the fixed sum once per payment. GOV.UK also says you can claim reasonable costs each time you try to recover the debt.
If your contract sets its own late payment terms
GOV.UK says you cannot claim statutory interest if your contract sets a different interest rate (GOV.UK). The exception is that a contract term trying to remove or cut the right to interest is void unless the contract still gives a "substantial remedy" for late payment (section 8 of the Act). Whether a remedy is substantial is a legal question, so take advice if a large sum depends on it.
Why it matters with invoice finance
Late payment is the reason many businesses use invoice finance, and a late invoice can also cost you more in lender charges. Statutory interest does not stop that, but claiming it can cover some of the cost. If your invoices are financed, check your agreement for who is allowed to claim it. The full text of the law is on legislation.gov.uk.
Related questions
Can I use the Act if my invoices are financed?
The right belongs to whoever is owed the debt. If the invoice has been sold or assigned to a factor or discounting lender, your agreement decides who can claim the interest and compensation, so check it or ask the lender before you add them to a chase.
Do I have to charge statutory interest?
No. You can choose whether to claim it, for example to keep a good customer. GOV.UK sets out how to work it out and claim it.
What if the base rate changes while the invoice is unpaid?
The rate does not change. It is fixed by the base rate on the last 30 June or 31 December before the debt became late.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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