How much interest and compensation can you charge on a late invoice?

If a business customer pays you late, you’re entitled to more than just the invoice amount. UK law lets you add statutory interest and a fixed compensation fee on top — automatically, whether or not your invoice ever mentioned it. Most small businesses never claim it. That’s money left on the table every time an invoice runs late.

Here’s exactly what you can add, and how to work it out.

What you can claim

For qualifying commercial (business-to-business) debts, the Late Payment of Commercial Debts (Interest) Act 1998 entitles you to three things:

• Statutory interest of 8% above the Bank of England base rate, calculated daily from the day after payment fell due. With the base rate at 3.75%, that’s currently 11.75% a year. (The Act fixes the rate every six months, on 31 December and 30 June — so the base rate on that date, not today’s, is the one that applies.)
• Fixed compensation, based on the size of the debt:
  • £40 for invoices under £1,000
  • £70 for invoices from £1,000 to £9,999.99
  • £100 for invoices of £10,000 or more
• Reasonable recovery costs above that fixed sum — for example, what you reasonably paid a debt recovery agency or solicitor to chase it.

Working out the interest

Interest builds up daily. The quick formula is:

daily interest = (invoice amount × annual rate) ÷ 365

So a £4,200 invoice at 11.75% a year accrues about £1.35 a day. Thirty days late, that’s roughly £41 in interest, plus £70 compensation — about £111 on top of the original bill. Leave it 90 days and the interest alone is over £120.

Rather than do this by hand, our free late-payment calculator works out the interest and compensation to the penny and generates a letter you can send.

When it applies (and when it doesn’t)

Statutory interest applies to commercial debts where the contract didn’t set its own late-payment rate. A few things to know:

• It doesn’t apply to consumers — only business-to-business debts.
• If your contract sets its own interest rate, that rate applies instead — but it can’t be used to dodge the Act unless it offers a “substantial remedy” for late payment.
• The clock starts the day after the agreed payment date. If no date was agreed, the Act sets a default (usually 30 days after delivery or invoice).

Putting it in writing

You don’t need a solicitor to claim it. A short, firm letter that states the invoice, the due date, the days overdue, the interest, the compensation and a clear deadline is often enough to prompt payment — the sums add up quickly, and most late payers would rather settle than watch them grow.

That letter is a letter before action, and it’s the last step before formal recovery. If it’s ignored, that’s usually the point to bring in a professional.

If it still isn’t paid

When a firm, correctly-quantified demand doesn’t land, a debt recovery agency will usually get further than another email from you — and you can pass on the reasonable cost of doing so. You can compare vetted UK agencies on Collect Compare, on merit and for free, or let us match you to the best fit for your case.

The one rule that matters: don’t let it drift. Interest is your leverage, and the older a debt gets, the harder it is to recover.