Silo 1 · Global Late Payment Law

UK Late Payment of Commercial Debts Act
1998 Guide & Compensation Calculator

By Santanu Sarma — Economics Honors, Bhattadev University · Updated June 2026 · 13 min read

You raised the invoice on the agreed date. Net-30, just like it says in the contract. Your client — a company with a hundred-person office, a marketing budget larger than your annual turnover, and a PR team that talks constantly about "supporting small business suppliers" — acknowledged receipt without complaint.

Day 31 arrives and nothing lands in your account. You send a polite nudge. Day 45, another one. By day 60 you're having a conversation with yourself about whether to chase your biggest client for money that is legally yours, knowing the power dynamic is not exactly symmetrical. By day 75, the unpaid invoice has become a shadow over every business decision you make: the equipment upgrade you've deferred, the subcontractor you can't pay on time yourself, the tax payment you're mentally ring-fencing from your own savings.

Here is the thing that most freelancers and small business owners never learn, despite being legally entitled to it from the very first day an invoice goes overdue: UK law automatically generates statutory interest and a fixed compensation fee on every late B2B payment, without you needing to have written it into the contract, without you needing to give notice, and without you needing to ask.

The Late Payment of Commercial Debts (Interest) Act 1998 — extended and strengthened by subsequent regulations in 2002 and 2013 — exists precisely because Parliament recognised that large businesses were using their market power to treat suppliers as an involuntary credit facility. The Act is the legislative correction to that power imbalance. This guide explains exactly how to use it.

What the Late Payment Act Actually Does

The Late Payment of Commercial Debts (Interest) Act 1998 creates a statutory right to interest on overdue B2B invoices. It applies to contracts for the supply of goods or services where both parties are acting in the course of a business — it does not apply to consumer debts, and it does not cover transactions with private individuals.

The Act was amended in 2002 to implement the EU Late Payment Directive, and again in 2013 to tighten payment windows and compensation entitlements. Even post-Brexit, the 2013 amendments remain in UK law — the substantive protections have not been rolled back.

The Default Payment Period

If your contract doesn't specify a payment date, the Act's default kicks in: the debt becomes overdue 30 days after the client receives your invoice, or 30 days after you deliver the goods or services, whichever is later. If the client operates an acceptance or verification procedure, the 30-day window starts from the end of that procedure — provided it doesn't run beyond 30 days itself.

Where a payment date is contractually agreed, the interest clock starts the day after that agreed date passes unpaid. There is no grace period. Day one of late payment is day one of statutory interest accrual.

The 60-Day B2B Cap

Following the 2013 amendment, B2B payment terms exceeding 60 days are only valid if they are not "grossly unfair" to the supplier. Payment terms beyond 60 days imposed by large buyers on small suppliers have been successfully challenged under this provision. Net-90, net-120, and end-of-quarter payment cycles common in retail and construction are legally vulnerable to challenge where they were never genuinely negotiated.

Public authorities — NHS trusts, local councils, government departments — face a strict 30-day maximum with no extension permitted by contract.

The Interest Formula: How to Calculate What You're Owed

The Act uses simple interest — no compounding. The calculation is straightforward once you have the correct Bank of England base rate for your due date.

Worked Example — £8,500 Invoice, 55 Days Late, H1 2026 Rate

£239.79 is yours by statute — without a contract clause, without a prior warning, without asking permission. And because that invoice sits in the £1,000–£9,999.99 band, the £70 compensation fee applies even if your client eventually pays the principal. The compensation fee is triggered by the fact of late payment, not by whether the underlying debt remains outstanding.

For a larger contract — say, £45,000 overdue for 55 days — the interest alone reaches £895, plus the £100 fixed fee for debts at or above £10,000. Total: £995 recoverable as a matter of statutory right.

The Three Fixed Compensation Tiers

Statutory interest compensates you for the time value of money tied up in an unpaid invoice. The fixed compensation fee is different — it covers the administrative cost of chasing a late payment: the time spent sending reminders, the cost of logging the debt, the internal overhead of managing a client who doesn't pay on time.

The fee is set by the size of the individual debt, not by the total amount owed across all invoices. If a client has three late invoices — one for £800, one for £3,200, and one for £15,000 — you apply a separate tier calculation to each one independently.

Tier 1: Debts Under £1,000 — Fixed Fee of £40

For any individual overdue invoice below £1,000 in principal value, the flat-rate compensation is £40. This applies per invoice, not per client relationship. Ten late invoices each worth £500 entitle you to ten separate £40 fees — £400 in total compensation, completely separate from any accrued interest.

Tier 2: Debts from £1,000 to £9,999.99 — Fixed Fee of £70

The most common tier for freelancers and small agencies. A single late invoice for £2,500 entitles you to £70 in compensation plus all accrued interest from the day after it was due. The threshold is applied to the invoice value at the point of issue, not to the remaining balance after any part payment.

Tier 3: Debts of £10,000 or More — Fixed Fee of £100

For invoices at or above £10,000, the fixed compensation is £100. At this invoice size, the accruing statutory interest typically dwarfs the flat fee — at 13.25% per annum, a £10,000 invoice accumulates £3.63 per day — but the £100 fee is still legally owed and should be claimed alongside the interest calculation.

When Your Actual Costs Exceed the Flat Fee

The fixed tiers are a floor, not a ceiling. Under Section 5A of the Act, if your reasonable costs of recovering the debt exceed the applicable flat fee, you can claim the difference. Reasonable recovery costs include documented legal fees, licensed debt collection agency charges, and court filing costs. You'll need evidence of what you actually spent — the flat fee requires no proof whatsoever, but the excess above it does.

Can a Client Remove Your Rights with Their Contract Terms?

This is the question that matters most in practice, because almost every large corporate client operates standard supplier terms that either cap or exclude late payment interest. The short answer: they cannot simply write away your statutory rights, but they can replace them — if the replacement is good enough.

Section 8 of the Act provides that any contract term purporting to oust or vary the statutory interest right is void unless it provides a "substantial contractual remedy" for late payment. The test for "substantial" is whether the remedy adequately compensates the supplier and is not rendered ineffective in practice by other contract terms.

What Courts Have Found Insufficient

A contractual interest rate of 2% or 3% has been found insufficient to constitute a substantial remedy where the statutory rate is 13.25%. A remedy that is theoretically available but requires the supplier to follow a complex claims process within an unreasonably short notice window has also been struck down. Token provisions inserted into boilerplate MSAs — without any evidence of genuine negotiation — tend to fare poorly in court.

What This Means Practically

When a large client's procurement team sends you their standard supplier agreement with a clause that says "interest on late payments shall accrue at 2% per annum, which shall be the supplier's sole remedy for late payment," that clause is almost certainly void under Section 8. You retain your full statutory rights regardless of whether you signed the contract. The Act was specifically designed to prevent this kind of take-it-or-leave-it drafting from being used to strip small suppliers of protection.

If you're in any doubt about a specific clause, a one-off consultation with a commercial solicitor is usually less than the interest you'd forfeit by assuming the clause is enforceable when it isn't.

Understanding the Bank of England Rate: Why the Timing Matters

The statutory interest rate under the Act is the Bank of England base rate in effect on the "relevant day" — defined as the day the debt becomes late — plus 8 percentage points. The rate is then fixed for the entire overdue period. It does not float. It does not update if the BoE raises or cuts rates after your invoice became overdue.

This creates an important practical nuance. If your invoice became overdue in November 2023, when the BoE base rate was 5.25%, your statutory rate for the entire overdue period is 13.25% — even if the BoE subsequently cut rates. Conversely, if your invoice became overdue in early 2022, when the base rate was still 0.1%, your statutory rate for that invoice is only 8.1% — even though the BoE later raised rates substantially.

Why Stale Rate Data Destroys Claims

The most common and entirely avoidable reason late payment interest claims are disputed is that the claimant used the wrong BoE base rate. Using today's rate for an invoice that became overdue 18 months ago, using a rounded figure instead of the exact published rate, or failing to account for a BoE rate change that occurred between invoice issue and the due date — all of these give the debtor a legitimate ground to reject your calculation.

The Bank of England publishes a full historical table of base rates at bankofengland.co.uk. Before submitting any formal demand, look up the exact rate that applied on the specific date your invoice became overdue and document your source.

The 6-Year Limitation Window: How Far Back Can You Claim?

Under the Limitation Act 1980, you have 6 years from the date a debt becomes due to bring a claim for that debt — including the statutory interest and compensation fees that attached to it. In Scotland, the equivalent period under the Prescription and Limitation (Scotland) Act 1973 is 5 years.

This means that an invoice from 2020 that a client paid late — but never paid the statutory interest on — is still within the 6-year window in 2026. You can formally claim that accrued interest now, provided you can document the original invoice, its due date, and the payment date.

The Clock Starts from When the Invoice Was Due

The 6-year limitation period runs from when the cause of action accrued — that is, from the date the invoice became overdue. It does not restart from the date you first chased payment, from the date you issued a formal demand, or from any subsequent acknowledgment of the debt by the client. Do not let a debtor's pattern of delay and partial engagement lull you into letting a claim go stale.

Practical Implications for Freelancers with Recurring Clients

If you have a long-term client who has consistently paid 30–45 days late across dozens of invoices over several years, the unclaimed statutory interest on those invoices can add up to a meaningful sum — particularly at the current 13.25% rate. A client paying a £5,000 monthly invoice 40 days late, every month, for three years, generates around £2,175 in unclaimed statutory interest alone, plus up to £2,520 in compensation fees across 36 invoices in the £1,000–£9,999.99 tier. That is a figure worth calculating before you decide whether to claim.

How to Issue a Formal Late Payment Demand

Claiming statutory interest under the Act does not require court proceedings for most situations. A properly structured written demand is usually sufficient to prompt payment from a commercially rational debtor.

Step 1 — Gather Your Documentation

Before issuing any formal demand, assemble: the original invoice with its issue date and reference number, evidence of delivery or service completion (an email confirmation, a signed delivery note, or a project sign-off), the agreed payment terms (from the contract or your standard terms), and the date on which you received payment (if the invoice has already been paid late and you're now claiming the interest separately).

Step 2 — Calculate at the Correct Rate

Look up the BoE base rate that applied on your invoice's due date. Add 8 percentage points to get the statutory rate. Apply I = P × r × (days ÷ 365). Add the appropriate flat compensation fee based on your invoice value. Document your arithmetic in a spreadsheet with the rate source cited.

Step 3 — Issue the Written Demand

Address the demand to the Finance Director or Head of Accounts Payable — not your day-to-day project contact. The demand should cite the Late Payment of Commercial Debts (Interest) Act 1998 by name, state the overdue invoice reference and amount, the number of days overdue, the BoE base rate used and its source, the calculated interest amount, the applicable compensation tier fee, and a 14-day deadline for payment in full. Send it by email with read receipt and by recorded post to their registered address.

A formally cited statutory demand lands differently than a payment reminder email. It signals to the debtor's legal and finance team that you are prepared to enforce, and most will pay within the deadline rather than accumulate further interest and litigation risk.

Step 4 — Escalate if Ignored

For claims under £10,000, the Small Claims Court in England and Wales (or the equivalent in Scotland and Northern Ireland) is the appropriate route — it is designed for litigants in person and does not require a solicitor. The court fee is proportional to the claim value. For claims above £10,000, the Fast Track or Multi-Track County Court process is more appropriate, and legal representation is advisable. Many commercial debt solicitors will assess a strong late payment claim on a fixed-fee or conditional-fee basis.

The Bigger Picture: What Claiming Actually Achieves

For a single £8,500 invoice overdue by 55 days, the statutory recovery is £239.79. That's not a number that transforms your balance sheet. But that's not the only thing you're doing when you issue a formal late payment demand.

Every AP department at a large company manages supplier payments on a prioritised queue. Suppliers who have historically absorbed late payment without consequence stay at the back of that queue. Suppliers who have once formally cited the Late Payment Act — professionally, without anger, simply as a matter of statutory entitlement — get moved forward. The informal signal is clear: this supplier tracks every invoice and will act.

The real return on knowing this statute is not the £239 you recover this month. It's the invoices that start clearing in 28 days instead of 58 days from next month onward.

And for any freelancer or agency running a portfolio of clients with recurring invoicing, the cumulative interest on a pattern of systemic late payment is not trivial. At 13.25% per annum, a client who habitually pays a £10,000 monthly invoice 45 days late is costing you £163.56 per invoice in statutory interest alone — nearly £2,000 per year on a single client relationship. You are legally entitled to every penny of it. The only question is whether you choose to claim it.

Frequently Asked Questions

This article is informational and reflects the Late Payment of Commercial Debts (Interest) Act 1998 and Bank of England published rates as of June 2026. It is not legal advice. The BoE base rate and statutory mechanics are subject to change — verify all figures at the Bank of England's official website before relying on them for a specific claim. For disputes exceeding £10,000, contested acceptance dates, or Section 8 contractual arguments, consult a licensed commercial solicitor.