Late Payment Interest: Your Legal Right to Charge It

You have done the work, the materials are paid for, and the invoice has been sitting unpaid for six weeks. Chasing it feels like begging for your own money. What most tradespeople do not realise is that the law is on your side: in the UK you have a legal right to charge interest and compensation on late commercial payments.

This guide explains what you can charge, when, and how to do it without falling out with a customer you might want to work for again.

What the late payment law actually gives you

The relevant legislation is the Late Payment of Commercial Debts (Interest) Act 1998, along with later regulations. It applies to business-to-business transactions, so work you do for another business, a landlord acting commercially, or a contractor who owes you for subcontracted work.

Under this legislation you can typically claim three things on a late commercial invoice:

• Statutory interest on the overdue amount.
• Fixed compensation for the cost of chasing the debt.
• Reasonable recovery costs above that fixed sum, where you can justify them.

Statutory interest is set at the Bank of England base rate plus a fixed percentage on top. Because the base rate moves, you should check the current figure rather than relying on a number you saw last year. As a rough guide, the additional percentage on top of base rate has historically been eight per cent, but always confirm the current rules before you put a figure on an invoice.

The fixed compensation is tiered by the size of the debt, with small, medium and larger bands. Again, check the current official guidance for the exact amounts, as they are set in regulation and can be updated.

Tip: Interest starts to run from the day after payment was due, not the day you decide to chase. So a clear, dated payment term on every invoice is what protects your right to charge.

When the right kicks in

You cannot charge interest the moment an invoice lands. The clock starts after the agreed payment date passes. This is why your terms matter so much.

If you have agreed a payment term in writing, that is the deadline. If you have not agreed anything, the law sets a default period, commonly 30 days, after which payment is late. For commercial work, very long terms imposed on you may also be challengeable if they are grossly unfair, but that is a grey area worth taking advice on.

A few practical points:

• Consumer jobs are different. The 1998 Act is about commercial debts. For a private homeowner, your right to charge interest usually depends on a term in your contract or quote, so spell it out up front.
• State your terms before you start. A line on your quote and invoice saying payment is due within, say, 14 or 30 days makes the deadline unarguable.
• Keep the paper trail. Dated quotes, signed acceptances and timestamped invoices are what you lean on if a dispute escalates.

If your quotes and invoices are scattered across notebooks and text messages, proving when something was due gets hard. Knowing the legal difference between a quote and an estimate is a good starting point for getting your paperwork watertight.

How to actually apply the interest

You do not need a solicitor to add statutory interest. The mechanics are straightforward.

1. Confirm the payment was genuinely late by checking the due date against your records.
2. Calculate the interest: take the overdue amount, apply the current statutory rate, and work out the daily interest for the number of days it has been late.
3. Add the fixed compensation sum for the relevant debt band.
4. Issue a revised statement or a separate interest invoice setting out the original debt, the days late, the rate used and the total.

Show your working clearly. A customer is far more likely to pay when they can see exactly how the figure was reached, rather than feeling stung by a mystery surcharge.

Should you always charge it?

Just because you can does not always mean you should slap it on. Many trades use the right as leverage rather than a routine charge.

• For a good customer who is a few days late, a friendly reminder usually does the job.
• For a repeat offender or a slow-paying contractor, mentioning your statutory right often gets the invoice to the top of their pile.
• For genuine bad debt, the interest and compensation become part of what you pursue.

The threat of interest is sometimes more useful than the interest itself. Once a customer knows you understand your rights, they tend to pay on time.

Building it into your everyday system

The businesses that get paid on time are rarely the ones charging the most interest. They are the ones whose process makes late payment unlikely in the first place.

That means quoting fast, invoicing the moment the job is done, stating clear terms, and chasing politely but consistently. A good polite system for chasing late payments will recover far more cash than interest charges ever will, because it stops invoices going badly overdue at all.

This is where a job-management platform earns its keep. With Gaffer, every quote and invoice carries your payment terms and due date automatically, so the deadline is never ambiguous. Automated reminders go out on a schedule you set, which means slow payers get nudged without you having to remember. And because every job has a clear, timestamped record, you always have the evidence if you do need to apply statutory interest or escalate.

Less chasing, fewer overdue invoices, and a clean paper trail when you need one. That combination does more for your cash flow than any single interest charge.

Keep it professional, keep it firm

Charging late payment interest is not aggressive, it is a normal part of running a commercial business, and bigger firms do it as standard. Tradespeople often feel awkward about it, but a customer who pays late is using your money as a free overdraft.

Set clear terms, invoice promptly, chase consistently, and know that the law backs you up when someone takes liberties. The right to charge interest is a tool. Used well, you may rarely need to fire it, because the people who owe you will already know you mean business.

FAQs

Can I legally charge interest on a late invoice in the UK?

Yes. For commercial (business-to-business) debts, the Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to charge interest plus fixed compensation once payment is overdue. For private homeowners, you generally need an interest term written into your contract or quote.

How much interest can I charge on late payments?

Statutory interest is the Bank of England base rate plus a fixed percentage on top, and you can also claim a tiered fixed compensation sum depending on the size of the debt. Both can change, so check the current official figures before adding them to an invoice.

When does late payment interest start to apply?

Interest runs from the day after the agreed payment date passes. If no term was agreed, a default period (commonly 30 days) usually applies before the debt counts as late, which is why clear written terms on every invoice matter.

Should I always charge late payment interest?

Not necessarily. Many trades use the right as leverage to get an invoice paid rather than as a routine charge. For good customers a polite reminder is often enough, but knowing your rights and stating them firmly tends to get slow payers moving.