Payment terms and late payment in the UK: what you can claim
Small businesses and contractors in the UK have real legal tools when a business customer pays late. Here's how payment terms work, what the late payment legislation lets you charge, and a calm, step-by-step way to chase.
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This guide covers business-to-business payments (for example, you invoicing an agency, contractor or company). Different rules apply when you sell to consumers.
Setting payment terms
Payment terms are what you and your customer agree about when an invoice must be paid: "14 days", "weekly in arrears", "end of month". Agree them before you start work, ideally in writing, and put the due date on every invoice. GOV.UK says that if you agree a payment date, it must usually be:
- within 60 days for business-to-business transactions, although a longer period can be agreed if it's fair to both businesses; and
- within 30 days for public authorities.
If you haven't agreed terms: the 30-day default
If no payment date was agreed, GOV.UK says the law treats the payment as late 30 days after either the customer gets the invoice, or you deliver the goods or provide the service, whichever is later. So even without written terms, you're not powerless.
Statutory interest: 8% plus base rate
Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge "statutory interest" on late business payments. GOV.UK sets it at 8% plus the Bank of England base rate. You can't claim statutory interest if your contract already sets a different interest rate.
How to calculate it:
- Add 8% to the Bank of England base rate (check the current rate on the Bank of England's website).
- Multiply the debt by that percentage to get a year's interest.
- Divide by 365 to get the daily amount.
- Multiply by the number of days late.
GOV.UK's own example uses a base rate of 0.5%: on a £1,000 debt the annual interest is £85, about 23p a day, so 50 days late is £11.50. The method stays the same whatever the current base rate. GOV.UK suggests sending a new invoice if you decide to add interest.
Fixed compensation for recovery costs
As well as interest, you can claim a fixed sum towards the cost of recovering the debt. The amount depends on the size of the debt:
| Amount of debt | Fixed sum you can claim |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
You may be able to claim reasonable costs above these amounts if recovering the debt cost you more, for example legal fees. See GOV.UK's guidance for the conditions.
Worked example
You invoiced an agency £1,005 with 14-day terms, and it's now 40 days past the due date. Suppose the base rate is 4%, so statutory interest is 12% a year. Annual interest is £1,005 × 12% = £120.60, or about £0.33 a day, so 40 days comes to roughly £13.22. The debt is between £1,000 and £9,999.99, so you can also claim £70 fixed compensation. You'd send a new invoice for £83.22 (or include it in your final demand), alongside the original £1,005. Use the actual base rate for the period you're claiming. This example is illustrative only.
Should you actually charge it?
Statutory interest is a right, not an obligation. Many contractors keep it in reserve: they mention it in reminders and only claim it if a customer is persistently late. A line on your invoices such as "We may charge statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998 on late payments" sets expectations without being aggressive.
A simple chasing timeline
- Before the due date: make sure the invoice reached the right person and matched any timesheet or purchase order.
- Day 1 overdue: a polite reminder with the invoice attached.
- Day 7: a firmer reminder. Ask when payment will be made and whether there's a problem.
- Day 14–30: a final reminder, mentioning your right to statutory interest and compensation.
- After that: a formal letter before action, then options such as the small claims process. GOV.UK has guidance on making a court claim for money.
See how to chase an unpaid invoice for email templates for each stage.
Preventing late payment in the first place
- Agree terms in writing before starting.
- Invoice promptly, as soon as the timesheet is approved or the work is finished.
- Put the due date and your bank details on every invoice.
- Use the client's references (purchase order, job number) so the invoice can be matched.
- Keep a list of what's outstanding and check it weekly.
Frequently asked questions
When is an invoice legally late in the UK?
When the agreed payment date passes. If no date was agreed, a business payment is late 30 days after the customer receives the invoice or you provide the service, whichever is later.
What interest can I charge on a late invoice?
For business-to-business debts, statutory interest of 8% plus the Bank of England base rate, unless your contract sets a different rate.
How much late payment compensation can I claim?
£40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more, plus possibly reasonable extra recovery costs.
Can a customer insist on 90-day terms?
Business payment terms over 60 days are only allowed if they're fair to both businesses. Public authorities must usually pay within 30 days.
Do I have to charge late payment interest?
No. It's a right you can use, waive or hold in reserve.
Sources
- Late commercial payments: when a payment becomes late – GOV.UK
- Interest on late commercial payments – GOV.UK
- Claim debt recovery costs on late payments – GOV.UK
- Bank of England – Bank Rate
This guide is general information, not legal, tax or financial advice. Rules and rates change, so check the linked GOV.UK pages for the current position.