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Insight · Getting paid

Charging interest on a late payment,
and the sums nobody claims.

Statutory interest runs at eight per cent above base, and a fixed compensation sum sits on top of it that almost nobody asks for. Both are automatic entitlements rather than favours.

Published ·Updated ·5 min read·Written by

A hand writing on documents at a desk

Under the Late Payment of Commercial Debts (Interest) Act 1998 you can charge statutory interest at eight per cent above the Bank of England base rate on a late commercial debt, as simple interest. On top of that, a fixed compensation sum is due per debt: £40 under £1,000, £70 from £1,000 to under £10,000, and £100 at £10,000 or more. Reasonable recovery costs above that fixed sum are also recoverable.

Three entitlements, not one

Almost every page on this subject covers the interest and stops. There are three, they stack, and the second and third are the ones firms leave on the table.

  1. Statutory interest. Eight per cent above the Bank of England base rate, running from the day the payment became late until it is paid. It is simple interest, so it does not compound.
  2. A fixed sum per debt. Once statutory interest starts to run, section 5A entitles you to a fixed sum in addition: £40 where the debt is under £1,000, £70 where it is £1,000 or more but under £10,000, and £100 where it is £10,000 or more. Per debt, which on a firm with many late invoices adds up faster than the interest does.
  3. Reasonable recovery costs above the fixed sum. Where your reasonable costs of recovering the debt exceed the fixed sum, you are entitled to the difference. That is what makes a debt recovery agent's or solicitor's fee recoverable rather than a cost of being owed money.

None of these is a favour you are asking for, and none depends on the contract mentioning them. They are statutory entitlements that apply to commercial debts by default.

The fixed sum is per invoice and it is claimed almost nowhere. On thirty late payments in a year that is a real number sitting unasked for.

What interest can you charge on a late payment?

The rate is deliberately not stated as a single figure here, because the base rate moves and any absolute number on a page like this is wrong within months.

What you need is the Bank of England base rate in force at the relevant time, plus eight percentage points. For a commercial contract the rate is fixed by reference to the base rate in force at the end of the six-month period in which the debt became late, and then applies for the following six months, which is why a debt running across a year can have two rates. Look up the base rate for the relevant period rather than using today's.

Then it is arithmetic: debt, multiplied by the rate, divided by 365, multiplied by the number of days late. Simple interest, no compounding.

When does statutory interest start running?

From the day after payment was due. Where the contract sets a payment period, that governs. Where it does not, the default is 30 days from the later of delivery of the goods or performance of the service, and receipt of the invoice.

Note how that interacts with construction. Your contract almost certainly does set the payment terms, so the relevant date is the contractual final date for payment rather than a generic 30 days. Establish that first, and if you are not sure what it is, the payment timetable calculator works it out.

Three things to know first

Three things worth knowing before you send an interest schedule to your biggest client.

  • It does not apply to consumers. This is for business to business debts. Work for a homeowner is outside it.
  • A contract can substitute its own remedy, but only within limits: a term that ousts or varies the statutory right is void unless the contract provides a substantial contractual remedy for late payment. It is not enough to simply write the entitlement out.
  • Interest can be remitted where the conduct of the supplier makes it fair, so the provision is not entirely mechanical. In practice this rarely bites on a straightforward unpaid application.

How to actually use it

The commercial reality is that most firms never charge it, because it feels like an escalation with a client they want to keep. That is a fair judgment, and it is worth separating two different uses.

As a claim. On a debt you are already pursuing, add it. If you are at the letter before action stage or beyond, there is no relationship left to protect and the interest plus fixed sums plus recovery costs materially change the number.

As a statement of position. Putting a line on your terms and on the invoice noting that statutory interest and compensation will be applied to overdue amounts costs you nothing and changes how you are treated. Payers triage. A supplier who is visibly aware of the entitlement moves up the run.

The middle path most firms settle on is sensible: state it on every invoice, and claim it selectively.

Where this touches the platform

Claiming this requires two things: knowing which invoices are late and by how many days, and knowing the contractual payment date each was measured against. Unibuild ages outstanding application value into current, thirty, sixty, ninety and one hundred and twenty plus days against the manager responsible, so the population of late payments is a report rather than an exercise. Applications and receipts sit against the project in date order with the total requested, total received, retention held and total outstanding across the top.

Applications for payment Financial and invoicing Cost control

Where to start, on Monday

Pull the list of invoices paid more than a fortnight late in the last twelve months and count them. Multiply by the relevant fixed sum band. That number alone, ignoring the interest entirely, is usually enough to make somebody in the business pay attention.

Then add one line to your invoice template and your terms noting the statutory entitlement. It is the cheapest change on this list and the only one that works without you having to do anything afterwards.

Sources

Checked against the source rather than against commentary. Where a schedule, a rate or a threshold is definitive on a government site, read it there.

Asked most often

The follow-up questions.

Where interest sits in the wider sequence is in when the contractor above you will not pay.

Can I charge interest on a late payment in the UK?
Yes, on commercial debts. The Late Payment of Commercial Debts (Interest) Act 1998 provides statutory interest at eight per cent above the Bank of England base rate, as simple interest, running from the day after payment was due until it is paid. It applies by default and does not need to be mentioned in the contract. It does not apply to debts owed by consumers.
How much is the late payment compensation fee?
A fixed sum per debt, due in addition to the interest once statutory interest starts to run: £40 where the debt is less than £1,000, £70 where it is £1,000 or more but less than £10,000, and £100 where it is £10,000 or more. Where your reasonable costs of recovering the debt exceed that fixed sum, you are entitled to the difference as well.
What is the current statutory interest rate for late payment?
Eight percentage points above the Bank of England base rate. Because the base rate changes, look up the rate in force at the relevant time rather than today's. For a commercial contract the rate is set by reference to the base rate in force at the end of the six-month period in which the debt became late, and applies for the following six months, so a long-running debt can attract two different rates.
When does statutory interest start running?
From the day after payment was due. Where the contract sets a payment period that governs, which in construction means the contractual final date for payment rather than a generic figure. Where the contract is silent, the default is 30 days from the later of performance of the service and receipt of the invoice.
How do I calculate statutory interest on a late construction payment?
Take the unpaid sum and apply the statutory rate for the relevant six-month reference period. Run it daily from the day after the payment became late until the day it is paid. Add the fixed compensation sum for each late invoice, which is banded by the size of the debt. Do the calculation per invoice rather than on the ledger balance, because each one has its own late date.
Can a contract exclude statutory interest on late payment?
Not simply by writing it out. A term that ousts or varies the statutory right is void unless the contract provides a substantial contractual remedy for late payment in its place. Interest can also be remitted in whole or part where the conduct of the supplier makes it fair to do so, though that rarely bites on a straightforward unpaid application.
Can I claim interest on retention released late?
Yes. Retention is a payment under the contract, and once its release date has passed it is a debt like any other. Firms rarely claim it, which is part of why retention drifts. A short schedule showing each retention release, its due date and the days outstanding is usually enough to prompt payment on its own, without the interest ever being pursued.
Can I claim interest after the invoice has already been paid?
Yes. The right to statutory interest accrues when the payment is late and survives the debt being settled afterwards. You can claim it later, subject to the ordinary limitation period. In practice most firms do not, and that is a commercial decision rather than a legal restriction. Where a client has been persistently late over a year, the accumulated figure is often larger than expected.
Does statutory interest apply to work for a homeowner?
No. The late payment legislation applies to contracts between businesses, so work for a residential occupier on their own home sits outside it. You can still charge contractual interest where your terms provide for it and the term is fair, and the courts can award interest on a judgment debt. For domestic work, the answer is to write an interest term into the quotation rather than to rely on the statute.
Does claiming interest damage the commercial relationship?
It depends entirely on how it is raised. Adding interest silently to a statement without warning reads as an escalation. Telling a client in advance that invoices unpaid after the final date will carry statutory interest, then applying it consistently, reads as a policy. Clients who pay everyone late respond to the second and ignore nothing else. The firms that never mention it are the ones who get paid last.
Next step

Know which invoices are late, and by how long.

The statutory sums are easy arithmetic. Knowing which invoices have passed their final date, today, is the part most firms cannot answer quickly.

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