UK Late Payment Interest Calculator

The Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment of Commercial Debts (Interest) Act 1998 (as amended) gives businesses in the United Kingdom a statutory right to charge interest on overdue invoices issued to other businesses. The Act applies to commercial contracts between businesses and cannot be excluded by contract unless a "substantial remedy" is provided in its place. It is one of the few areas of UK commercial law where a creditor's right is almost impossible to contract out of entirely.

The Act was supplemented by the Late Payment of Commercial Debts Regulations 2002, which implemented the EU Late Payment Directive (now retained in UK law post-Brexit) and introduced the fixed compensation fee in addition to the interest entitlement.

How statutory late payment interest is calculated

The statutory interest rate is the Bank of England base rate plus 8 percentage points. Interest accrues on a simple (not compound) basis, calculated daily. The formula is:

• Annual interest = Invoice amount x (base rate + 8%) / 100
• Daily interest = Annual interest / 365
• Total interest = Daily interest x number of days overdue

The Bank of England base rate as of early 2026 is 4.25%, giving a statutory rate of 12.25% per annum and a daily rate of approximately 0.03356% (12.25 / 365).

The fixed compensation fee

In addition to interest, you are entitled to claim a fixed compensation fee to cover the cost of recovering the debt. The fee tiers under the Late Payment of Commercial Debts Regulations 2002 are:

• £40 for debts under £1,000
• £70 for debts of £1,000 to £9,999.99
• £100 for debts of £10,000 or more

The compensation fee is per invoice, not per debtor. If you have five overdue invoices from the same client, each one carries its own compensation fee. You can also claim reasonable debt recovery costs beyond the compensation fee if your actual costs exceed the fixed amount.

When does late payment interest start accruing?

Interest begins to accrue on the day after the payment due date. The payment due date is:

• The date agreed in the contract, if one is specified
• 30 days after the later of: the invoice date, or the date the goods or services were delivered, if no date is agreed
• 30 days for public authority contracts (even if a longer period is agreed), with some exceptions

Note that agreed payment terms cannot exceed 60 days between businesses unless the terms are not grossly unfair to the creditor. Payment terms beyond 60 days agreed in a contract may be unenforceable if challenged.

Does this apply to my invoices?

The Act applies to contracts for the supply of goods or services where both parties are businesses (B2B). It does not apply to:

• Consumer transactions (B2C)
• Employment contracts
• Certain regulated financial services
• Contracts where the debtor is not acting in a business capacity

If you invoice individuals who are private consumers, you cannot use the statutory interest rate under this Act. However, you may be able to claim contractual interest if your payment terms specify a rate, or rely on the Late Payment Act where the individual is acting as a sole trader in a business context.

How to enforce late payment interest

You do not need to state your right to charge late payment interest on the invoice itself, though it is good practice. To claim it, simply send the debtor a supplementary invoice or letter itemising the interest accrued, the daily rate, the period of calculation, and the compensation fee. Most debtors will pay once they understand the liability. If payment is still not made, the amount (including interest) is a debt that can be pursued through the courts. Late payment interest continues to accrue until the original invoice is paid.

Preventing late payments with Tidybill

The most effective way to reduce late payments is automated payment reminders. Tidybill sends reminder emails before and after the due date on a schedule you configure. You can also add a late payment interest clause to your invoice footer so clients are aware of the statutory right before the invoice falls overdue. See the full guide to UK statutory late payment interest.

Tidybill tracks your overdue invoices and can display the interest accrued. See Tidybill pricing - free plan available.