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On an overdue business-to-business invoice you can add 11.75% statutory interest and £40 to £100 fixed compensation — with nothing about late payment in your contract.
The invoice went out 63 days ago. Three reminders, the last one faintly apologetic, and the accounts inbox has gone quiet. On a business-to-business debt you can add statutory interest at 11.75% a year plus fixed compensation of £40, £70 or £100 to every overdue invoice — with nothing about late payment written anywhere in your contract.
The right comes from the Late Payment of Commercial Debts (Interest) Act 1998. It attaches the day after payment was due, whether or not you ever warned the customer, and it covers commercial debts between businesses and public bodies. It does not cover consumers.
You do not have to apply it, and plenty of firms hold it back for customers who ignore two reminders. But the entitlement exists the moment the invoice goes overdue, and a customer cannot contract it away with a term offering no substantial remedy — which is also why setting your own interest rate below the statutory one can leave you worse off than saying nothing. For the exact figure on your invoice, use our free late payment interest calculator.
Statutory interest is 8 percentage points over the Bank of England base rate — but not the base rate on the day you do the sum. Under the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 the reference rate is the official dealing rate in force on 30 June for debts becoming late between 1 July and 31 December, and the rate in force on 31 December for debts becoming late between 1 January and 30 June. Once fixed, it holds for the whole six months.
The base rate was cut to 3.75% on 18 December 2025 and has been held there since, so it stood at 3.75% on both 31 December 2025 and 30 June 2026. Statutory interest is therefore 11.75% a year on any commercial debt that became late at any point during 2026. The 8-point margin is fixed by the Act and does not move.
The 8-point margin: Late Payment of Commercial Debts (Interest) Act 1998. The reference-rate rule: Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. Reference base rate 3.75%, in force on both 31 December 2025 and 30 June 2026, giving 11.75% for debts falling late during 2026. The £40, £70 and £100 sums and the 30-day default: GOV.UK. Checked against GOV.UK, legislation.gov.uk and the Bank of England on 3 August 2026.
Agreed a payment date? Interest runs from the day after it. Agreed nothing? The Act applies a 30-day default, running from the later of the customer receiving the goods or service and receiving the invoice, so being informal about dates does not cost you the right. Agreed terms are not unlimited either: GOV.UK puts the normal ceiling at 30 days for a public authority and 60 days between businesses, and anything longer has to be fair to both sides — a customer who unilaterally announces 120-day terms is not automatically safe. State the payment date on the order paperwork and repeat it on the invoice, and there is nothing left to argue about.
Made-up figures, to show the arithmetic. A landscaping firm is owed £6,000 by a commercial client, 45 days past the due date. At 11.75%, interest runs at roughly £1.93 a day — about £87 over those 45 days. Add £70 fixed compensation for a debt in the £1,000–£9,999.99 band and the client owes about £6,157, rising by nearly £2 a day for as long as they sit on it. None of it needed a word about interest in the original deal.
You do not open with a demand. Keep the tone flat and let the pressure rise:
Keep every step in writing and dated. If the customer says the work was faulty, stop: that is a dispute, not lateness. Deal with the complaint, the written scope and what was signed off first, because pushing a letter before action onto a genuinely disputed debt can cost you on costs later even where the money turns out to be owed.
After the deadline: a letter before action, then a small claims or county court claim, and in some cases a statutory demand. Where the debtor is an individual or a sole trader the Pre-Action Protocol for Debt Claims applies — a prescribed letter of claim with an information sheet and reply form, and 30 days to respond. Ignoring it can cost you even where the money is plainly owed. Issuing and conducting a claim, advocacy and enforcement are reserved, contentious work and go to RHF Solicitors, authorised and regulated by the SRA (no. 324115). Most debts never get that far once the paper trail shows you are organised and right on the law.
Open your aged debtor list today. For every business invoice past its due date, work out the daily interest and the compensation band and put both lines on the next statement you send. That is a half-hour job, and it is the whole of the leverage.
If you would rather it was done for you: calculating interest and compensation, drafting the statement of account and writing a letter before action is non-reserved work, scope and fee agreed in writing before anything starts. If it keeps happening the fault is upstream — a terms and conditions package at £695 +VAT fixes the payment date, the interest position and how your terms get into the contract at all. Book a legal review and bring one unpaid invoice with you. This is general information, not advice on a specific debt.
The full process is in our guide to chasing unpaid invoices; the terms that stop it recurring are in supplier agreements. Prices are on fixed-fee work.
This is general legal information, not advice on your situation. For advice tailored to your business, book a legal review. Buzz Legal Ltd is not a firm of solicitors and is not regulated by the SRA; it provides non-reserved business legal support, and reserved legal activities are carried out by RHF Solicitors, authorised and regulated by the Solicitors Regulation Authority (no. 324115).
Send us your email and we'll send the reminder sequence — what the statement of account should say the day it falls due, at 14 days and at 30 days, and when to move to a letter before action.
Yes, on a business-to-business debt. The Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory interest at 8 percentage points over the Bank of England base rate, running from the day after the agreed payment date, plus fixed compensation per invoice. It applies automatically to commercial debts between businesses and public bodies, and never to consumer debts. You can choose not to enforce it, but the entitlement exists from the moment the invoice goes overdue whether or not your paperwork mentions it, and a customer cannot contract it away with a term that offers no substantial remedy in its place.
It is a flat sum per overdue invoice, not per customer: £40 for debts under £1,000, £70 for debts of £1,000 to £9,999.99, and £100 for debts of £10,000 or more. Ten unpaid invoices of £800 each therefore carry £400 of compensation, not £40. On top of that you can claim the reasonable cost of recovering the debt where your actual costs exceeded the fixed sum, such as a collection agency's fee. Set interest and compensation out as separate lines on the statement of account, so the customer can see exactly what the delay is costing them.
If you agreed a payment date, interest runs from the day after it. If no date was agreed, the Act applies a default of 30 days, running from the later of the customer receiving the goods or service and receiving the invoice, so the clock still starts even where nothing was written down. Agreed terms are not unlimited either: GOV.UK puts the normal ceiling at 30 days for a public authority and 60 days between businesses, and anything longer has to be fair to both sides. State the payment date on the order paperwork and repeat it on the invoice.
No. The 1998 Act covers debts between businesses and public bodies, not consumers. For an unpaid consumer debt you rely on any interest term in your own contract, which has to be fair under the Consumer Rights Act 2015 to be enforceable, or on interest the court awards if you issue a claim. The process is different too: where a business claims from an individual or a sole trader, the Pre-Action Protocol for Debt Claims applies, requiring a prescribed letter of claim with an information sheet and reply form, and 30 days to respond. Ignoring it can cost you on costs later even where the money is plainly owed.
Everything short of court, because chasing a debt is non-reserved work: calculating the statutory interest and compensation, drafting the statement of account, and writing a letter before action that follows the applicable pre-action protocol. Scope and fee are agreed in writing before anything starts. We will also look at why it keeps happening, which is usually payment terms that were never properly incorporated — a terms and conditions package starts at £695 +VAT. What we cannot do is issue or conduct a court claim or enforce a judgment; those are reserved matters handled by RHF Solicitors (SRA no. 324115).
Clear scope · fixed fees available. Buzz Legal Ltd is not a firm of solicitors and is not regulated by the SRA.