If your customer is a business, you can charge statutory interest of 8% above the Bank of England base rate — fixed half-yearly — on overdue invoices, plus a fixed £40, £70 or £100 depending on the size of the debt. It's the law, no contract clause needed. Private homeowners aren't covered, though.
The short answer: it depends who owes you
There are two completely different worlds here, and mixing them up is where trades get caught out. If the customer is a business — a landlord, a letting agent, a builder you subbed for, a shop, a developer — you've got real legal teeth under the Late Payment of Commercial Debts (Interest) Act 1998.
If the customer is a private homeowner, you don't get those automatic rights, and you need to be careful what you claim. Work out which one you're dealing with before you write a word.
What you can charge a business customer
For business-to-business debts, the 1998 Act kicks in automatically — no clause in your contract needed, no agreement from the customer needed. It gives you three things:
| Statutory interest | 8% above the half-yearly Bank of England reference rate, as simple interest, from the day after the invoice was due |
|---|---|
| Fixed compensation | A one-off fee per invoice, on top of the interest (see the tiers below) |
| Recovery costs | Reasonable costs of chasing the debt, above that fixed fee |
The rate is fixed twice a year, which trips people up: you use the Bank of England base rate as it stood on the last 31 December or 30 June, not today's. Whatever that was, add 8 and that is your rate for the whole half-year. Look the base rate up rather than trust a number you read somewhere — it moves. And it's simple interest, not compounding — it doesn't snowball on you or them.
Fixed compensation goes by the size of the debt:
| Debt under £1,000 | £40 |
|---|---|
| Debt £1,000 to £9,999.99 | £70 |
| Debt £10,000 or more | £100 |
Worked example: a £2,000 invoice to a business, 30 days late. Say the base rate for that half-year was 4% — that's 12% a year, so about £20 in interest, plus £70 fixed compensation. Not life-changing money — but naming it in your chase message changes how fast people pay. You've also got up to six years to claim it (five in Scotland). The rate is 8% plus the Bank of England base rate for that half-year, plus the fixed sum above.
The homeowner catch — don't overstate this
Here's the bit trades get wrong. The Late Payment Act only covers business-to-business debts. A private homeowner who's late paying is not covered. You can't just slap statutory 8%-plus interest onto a domestic customer's overdue bill, and claiming you can will land you on the back foot.
With homeowners, you can only charge interest if you agreed it up front — your quote or written terms said "late payments carry interest at X%" and they accepted that before the job. No terms, no interest. So if most of your work is domestic, your real tools aren't the Act. They're speed (invoice same day, card link on it), polite persistence, and a deposit up front on the bigger jobs.
How to calculate interest on a delayed payment
The sum is simple interest, so it is the same arithmetic every time: the amount owed, times the annual rate, divided by 365, times the number of days late.
The rate is 8% plus the Bank of England base rate that stood on the last 31 December or 30 June, whichever is more recent, and that figure stays fixed for the whole half-year. Look the base rate up on the Bank of England's site when you do the sum rather than trusting a number from memory; it moves.
As an illustration only, if the reference rate for the half-year were 4%, the statutory rate would be 12% a year, and the interest would run like this:
| Amount overdue | 30 days late | 60 days late | 90 days late | Fixed sum on top |
|---|---|---|---|---|
| £500 | £4.93 | £9.86 | £14.79 | £40 |
| £1,500 | £14.79 | £29.59 | £44.38 | £70 |
| £2,500 | £24.66 | £49.32 | £73.97 | £70 |
| £5,000 | £49.32 | £98.63 | £147.95 | £70 |
| £12,000 | £118.36 | £236.71 | £355.07 | £100 |
Two things jump out. The interest itself is modest on the sort of invoices most trades raise, and the fixed sum is often the bigger number. That is why the fixed compensation matters more than the percentage on a £600 job, and why naming both in a reminder tends to move things: the customer can see the bill growing by a fixed step, not by pennies.
What to put on the invoice and in the reminder
You do not need a clause for a business customer, but stating your terms on every quote and invoice removes the argument later.
A plain line does it: "Payment is due within 14 days. Late payments are subject to statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998."
For homeowners, where the Act does not apply, the line has to be agreed before the work starts, so it belongs on the quote they accept: "Payment is due within 7 days of the invoice. Overdue balances carry interest at 8% a year." If it was not on the quote, do not add it to the invoice afterwards.
When an invoice to a business goes past due, the reminder does not need a threat, only the facts. Something like: "Invoice 1042 for £2,000 was due on 14 August and remains unpaid. Under the Late Payment Act, statutory interest and a £70 fixed sum now apply. Please settle by 28 August to avoid this increasing." Short, dated, specific, and it names the number.
Our guide on how to chase an unpaid invoice has the full sequence of messages from the friendly nudge to the last one.
If it still is not paid
The next step is a letter before action: the amount, the invoice number and date, the interest and compensation accrued, a clear final date (14 days is usual), and a plain statement that you will start a court claim if it is not paid. Most debts that get this far are settled at this point.
If not, claims for money in England and Wales are made online through the government's money claim service, and the fee depends on the size of the claim; the current fee bands are on GOV.UK and change from time to time, so check them before you file rather than relying on a figure from a forum.
You can add the statutory interest and fixed sums to the claim against a business, and even against a private customer the court can award interest on the debt, usually at 8% a year, from when it was due. Scotland uses the sheriff court's simple procedure for smaller debts and has a five-year limit rather than six.
Keep the paperwork tidy as you go: the accepted quote, the invoice, the dates it was sent and chased, and copies of every reminder. A claim is won on the record, and a trade with a clean record on the phone rarely has to file one.
How to actually use it
For a late-paying business, you don't need to fire the interest off on day one. Chase politely first — there's a stage-by-stage approach in our guide on how to chase unpaid invoices. If it's still not paid, your day-14 message can note that statutory interest and compensation are now running under the Late Payment Act — that line alone settles a lot of invoices.
If it goes properly stubborn, a letter before action stating the debt, the interest accrued and a clear final date usually does it well before any court. TradePA flags every invoice the day it goes overdue and writes the reminder for you — here's what TradePA costs. (This is general guidance for UK trades, not legal advice — for a specific dispute, speak to a solicitor or Citizens Advice.)
Common questions
How much interest can I legally charge on a late invoice?
How do I calculate interest on a delayed payment?
What is the current late payment interest rate?
Can a sole trader charge late payment interest?
Can I charge a homeowner late-payment interest?
Is the fixed compensation per invoice?
Do I need a clause in my contract to charge a business interest?
How long do I have to claim it?
A word on the above. This is general information for UK trades, written to be useful, not advice for your situation. Prices vary by job and by region, and tax and legal rules change. Check the current position on GOV.UK or ask your accountant or legal professional for actual advice.
