Late Payment Interest: What UK Trades Can Actually Charge

↑ Part of the Getting Paid series · Getting Paid On Time

If a business pays you late, UK law is firmly on your side: you can charge statutory interest of 8% plus the Bank of England base rate, add fixed compensation of £40, £70 or £100 per invoice, and claim reasonable recovery costs, and those rights apply automatically, with no special clause needed in your terms. If a homeowner pays late, the Act doesn't apply: you need an interest clause of your own, agreed before the work started.

This sits alongside our guide to getting paid on time, on the one thing that changes the tone of every chasing conversation: knowing exactly what the law entitles you to, even when you never charge a penny of it.

Part 1Two customers, two sets of rules

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The single most important thing here is who owes you the money. The Late Payment of Commercial Debts (Interest) Act 1998 covers business-to-business debts: a contractor, a developer, a landlord's company, a shop. It does not cover consumers, so for domestic customers the strength of your position comes from your own written terms instead. Everything below splits along that line.

Part 2Business customers: what the Act gives you

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For a commercial debt that's gone past its agreed payment date (or past the statutory default period where no date was agreed), you're entitled to:

• Statutory interest at 8% plus the Bank of England base rate, running from the day the payment became late.
• Fixed compensation, per late invoice: £40 on a debt up to £999.99, £70 from £1,000 to £9,999.99, and £100 at £10,000 or more.
• Reasonable recovery costs above the fixed sum, where chasing the debt genuinely cost you more.

None of it needs to be in your terms to exist. It's the law's default position, which is precisely what makes it useful: a late payer can't argue you never mentioned it.

Part 3Working the interest out

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The sum is: debt × (8% + base rate) ÷ 365, which gives you the interest per day, then multiply by the days late. Say you're owed £3,000 and the base rate you use is 3.75%: that's £3,000 × 11.75% = £352.50 a year, or about 97p a day. Thirty days late is roughly £28.97 of interest, plus the £70 fixed compensation for a debt that size — call it £100 for a month of being messed about. One thing that trips people up: you don't use today's base rate, you use the rate that was in force on the last 30 June or 31 December before the interest started — the 30 June rate covers debts going late between 1 July and 31 December, the 31 December rate covers 1 January to 30 June. That reference rate is then fixed for the whole six months, even if the Bank of England moves rates in between.

Statutory interest: £3,000 × 11.75% ÷ 365 × 30 days	£28.97
Fixed compensation, for a debt from £1,000 to £9,999.99	£70.00
You may add to the invoice	£98.97

The 11.75% is 8% plus a base rate of 3.75% — the rate in force on 30 June 2026, which is the one that governs debts going late between 1 July and 31 December 2026. On 1 January 2027 the 31 December 2026 rate takes over, and this figure changes with it.

Notice what that number is and isn't. It won't make you rich. What it does is put a meter on the delay, running in your favour, and change late payment from a free loan into something that costs the payer money.

Part 4Domestic customers: your terms do the work

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For homeowners the statutory scheme doesn't apply, so the strongest position is a plain interest clause in your terms, agreed before work starts: the rate, and when it begins. A clause the customer accepted with the quote is very hard to argue with later. Without one you're not powerless — if you end up making a court claim you can ask for interest (usually 8%) to be added — but a rate agreed up front beats one argued about at the end, every time.

This is one more reason the paperwork order matters: terms belong on the quote the customer accepts, not on the final invoice as a surprise. (Our guide on what to put in a quote covers where they live.)

Part 5Should you actually charge it?

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Sometimes the smartest use of this right is never invoking it. The point of stating interest in your terms, and mentioning it calmly in a reminder, is that most people pay before it ever applies. A line like "if payment isn't received by the 14th, interest and compensation may be added as set out in our terms" moves you up the payment queue without a single hard word.

When someone is genuinely taking liberties — a contractor sitting on your money for sixty days as a habit — charge it. That's what it's for, and businesses that pay late budget for the suppliers who enforce their rights and lean on the ones who don't. For a good customer who hit a rough month, waiving it, visibly, buys loyalty that's worth more than £28.97. The right move is a choice; the entitlement means it's your choice.

Part 6Where it fits in the chase

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Interest isn't step one. The sequence that works is the calm escalation in our getting paid guide: friendly reminder, formal reminder (this is where interest gets mentioned), then a letter before action with the interest and compensation shown as a clear total, then, if it comes to it, a court claim. At each step the meter you're entitled to run makes the next step more expensive for them than simply paying you.

A real quote shows payment terms and due dates set out on the document itself, agreed at the point the customer accepts.

Common questionsLate payment interest: quick FAQ

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How much interest can I charge on a late payment in the UK?

For business customers, statutory interest is 8% plus the Bank of England base rate, running from when the payment became late, plus fixed compensation of £40, £70 or £100 depending on the size of the debt. For domestic customers, the rate is whatever your agreed terms say.

Do I need a clause in my terms to charge interest?

For business-to-business debts, no: the statutory right applies automatically. For domestic customers, yes: put the rate and start point in the terms the customer accepts before work begins. Stating it clearly helps in both cases, because it gets you paid on time in the first place.

Can I charge the fixed compensation on every late invoice?

Yes, for commercial debts it applies per late invoice, not per customer: £40, £70 or £100 according to each invoice's size.

When does interest start running?

From the day after the agreed payment date passes. If no date was agreed, the law implies a default period for commercial debts, but a clear "payment due within 14 days of invoice" on your quote removes all doubt, which is exactly why you set one.

What if they still don't pay?

Interest doesn't replace the escalation, it travels with it: include the accrued interest and compensation in your letter before action, and in the claim if you issue one. The step-by-step route, through to Money Claim Online, is in our getting paid guide.

This guide is general information for UK tradespeople, current to the best of our knowledge in 2026, and is not tax, accounting or legal advice. Rates, thresholds and how they apply to you change, so confirm your position with HMRC, a qualified accountant or a solicitor before relying on it. TradeDraft accepts no liability for decisions made on the basis of this guide. Questions: hello@tradedraft.co.uk.