Late Payment in the UK: Your Rights and Options
UK businesses are owed an average of £22,000 in overdue invoices at any time, according to the Federation of Small Businesses, and approximately 50,000 businesses fail each year due to cash flow problems caused by late payment. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge statutory interest of 8% above Bank of England base rate on any late B2B payment. But charging interest doesn't solve the immediate cash gap. Here's what does.
Under the Late Payment of Commercial Debts Act 1998, UK businesses can charge 8% above base rate on overdue B2B invoices. But the fastest practical solution is invoice finance, which releases 85-90% of invoice value within 24 hours.
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Summary
UK SMEs are owed an average of £22,000 in overdue invoices, and 50,000 businesses fail annually from late payment cash flow problems. Legal rights include statutory interest at 8% + base rate and fixed compensation per invoice. Practical solutions ranked by speed: invoice finance (24 hours), early payment discounts, polite chase, statutory interest, debt collection, and court claims.
This page covers
UK late payment rights under the 1998 Act and practical solutions for businesses affected
Not covered here
Late payment statistics (see /stats/late-payment-crisis/), how invoice finance works (see /guides/how-invoice-finance-works/)
Your Legal Rights
Late Payment of Commercial Debts Act 1998
- Statutory interest: 8% + Bank of England base rate (currently 3.75% = 12.5% total) on the outstanding amount, calculated daily from the day after the payment due date
- Compensation: Fixed sum per invoice: £40 (debts under £1,000), £70 (£1,000-£9,999), £100 (£10,000+)
- Applies to: All B2B transactions unless you've contractually agreed different terms
- Unfair terms: Contract terms that are "grossly unfair" in extending payment beyond 60 days can be challenged
"Late payment is the single biggest threat to small business survival in the UK. It's not just an inconvenience - it forces owners to use personal savings, miss their own supplier payments, and delay hiring. The knock-on effects ripple through entire supply chains." , FSB research director, Federation of Small Businesses
Why Most Businesses Don't Use It
In theory, you can charge interest on every late invoice. In practice, most businesses don't because they fear damaging the customer relationship. If Tesco pays you 15 days late on a £50,000 invoice, you could charge £1,027 in interest and a £100 compensation. But you probably won't, because you want the next order.
This is precisely why invoice finance exists. Instead of chasing payment or charging interest, you hand the invoice to a factoring provider and get 85-90% within 24 hours. The factoring company deals with the timing. You keep the customer relationship intact.
Practical Solutions, Ranked
| Solution | Speed | Preserves Relationship? | Cost |
|---|---|---|---|
| Invoice finance | 24 hours | Yes | 0.5-3% |
| Early payment discount | If accepted | Yes | 2-5% discount |
| Polite chase | Days-weeks | Yes | Free (your time) |
| Statutory interest | Adds to debt | Risk | Free |
| Debt collection agency | Weeks-months | No | 10-25% commission |
| County Court claim | Months | Destroyed | Court fees + solicitor |
Prevention Is Better Than Cure
- Credit check new customers before offering credit terms. Services like Creditsafe and Experian Business cost £50-200/month and save thousands in bad debt. Data from BACS/Pay.UK shows late payments cost UK businesses an estimated £684 million per year in charges and interest alone.
- Invoice immediately on delivery/completion. Every day you delay invoicing adds a day to your cash gap.
- Set up standing orders or direct debits with repeat customers where possible.
- Use invoice finance as a structural solution - don't wait until you're in crisis. Set it up when things are good and it's there when you need it.
Director, Market Invoice
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: 6 April 2026