Your Rights When Clients Don't Pay: UK Late Payment Law Explained

Late payment is a chronic problem for UK small businesses. According to the Federation of Small Businesses (FSB), the average UK small business is owed £8,500 in overdue invoices at any given time. That's money tied up that should be working for your business—paying suppliers, covering payroll, or investing in growth.

But here's what many business owners don't realise: you have legal rights when clients pay late. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the right to claim interest and fixed compensation on overdue invoices, no questions asked.

This guide explains exactly what you're entitled to, how to calculate it, and how to claim it.

What is the Late Payment of Commercial Debts (Interest) Act 1998?

The Late Payment Act is UK legislation that gives businesses the right to charge interest and compensation when commercial invoices are paid late. It applies to all business-to-business (B2B) transactions where payment terms have been agreed.

Key points:

• Automatic right: You don't need to include it in your contract—the law gives you this right automatically
• B2B only: The Act covers business-to-business debts, not consumer debts (B2C)
• Statutory interest: Currently 8% + Bank of England base rate (11.75% total as of December 2025)
• Fixed compensation: £40 to £100 depending on the debt size
• No need to prove loss: Unlike breach of contract claims, you don't need to prove you suffered financial loss

Who Can Claim Under the Late Payment Act?

You can claim statutory interest and compensation if:

1. You're a business - This includes sole traders, partnerships, limited companies, and LLPs
2. Your client is a business - The Act only covers B2B transactions
3. The invoice is overdue - Payment must be past the due date stated on your invoice (or 30 days if no date was specified)
4. The debt is undisputed - Your client hasn't raised a legitimate dispute about the work or amount

Important: The Late Payment Act does not apply to consumer debts. If you sold goods or services to an individual for personal use, different rules apply.

What Interest Can You Charge?

The statutory interest rate is:

8% + Bank of England base rate

As of 18 December 2025, the Bank of England base rate is 3.75%, making the total statutory rate 11.75% per year.

How Interest is Calculated

Interest is simple interest (not compound) calculated on a daily basis from the day after the due date until the invoice is paid.

Formula:

Daily interest = (Invoice amount × Annual rate) ÷ 365
Total interest = Daily interest × Days overdue

Example:

• Invoice amount: £5,000
• Days overdue: 30 days
• Annual rate: 11.75% (8% + 3.75%)

Daily interest = (£5,000 × 0.1175) ÷ 365 = £1.61 Total interest = £1.61 × 30 = £48.29

Use our free late payment calculator to calculate interest on your overdue invoices instantly.

Bank of England Base Rate Changes

The statutory interest rate changes when the Bank of England changes its base rate. The rate that applies to your invoice is determined by the reference period when the debt became overdue:

• 1 January to 30 June: Use the BoE rate on 31 December of the previous year
• 1 July to 31 December: Use the BoE rate on 30 June of the same year

This means the rate is fixed for 6-month periods, even if the BoE changes rates during that time.

Fixed Compensation: How Much Can You Claim?

In addition to interest, you can claim fixed compensation for debt recovery costs. The amount depends on the invoice value:

Invoice Amount	Fixed Compensation
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

Example:

• Invoice: £3,500 (30 days overdue)
• Statutory interest: £41.44
• Fixed compensation: £70
• Total claim: £111.44

This compensation is in addition to the invoice amount and interest. It's meant to cover the administrative cost of chasing payment.

Can You Claim More Than the Fixed Amount?

Yes. If your actual recovery costs exceed the fixed compensation (for example, if you hired a debt collection agency or solicitor), you can claim your reasonable costs instead. However, most small businesses find the fixed compensation sufficient and easier to claim.

How to Claim Late Payment Interest and Compensation

Here's the step-by-step process:

1. Send a Reminder (Polite)

Start with a friendly reminder. Many late payments are simply due to oversight or administrative delays. Email your client:

"Hi [Name], Just a quick reminder that invoice #[number] for £[amount] was due on [date]. Could you confirm when payment will be made? Thanks, [Your name]"

2. Send a Formal Reminder (With Interest Notice)

If the polite reminder doesn't work, send a more formal reminder mentioning your right to claim interest:

"Dear [Name], Invoice #[number] for £[amount] remains unpaid [X] days after the due date of [date]. Under the Late Payment of Commercial Debts (Interest) Act 1998, we are entitled to claim statutory interest and compensation on overdue payments. Current interest accrued: £[amount] Current total owed: £[invoice + interest + compensation] Please arrange payment within 7 days to avoid further interest charges..."

3. Send a Letter Before Action

If payment still isn't made, send a Letter Before Action (LBA). This is a formal legal step that warns you're prepared to take court action if payment isn't received.

Use our free Letter Before Action generator to create a compliant LBA in minutes.

4. Small Claims Court

If the LBA doesn't result in payment, you can start a claim through the Small Claims Court for debts under £10,000. The process is:

1. File your claim online at moneyclaim.gov.uk
2. Pay the court fee (£35 to £455 depending on claim value—you can add this to your claim)
3. The court serves the claim on your client
4. Your client has 14 days to respond
5. If they don't respond, you can request a County Court Judgment (CCJ)
6. If they dispute, the case goes to a hearing

Good news: Most cases settle before court once your client receives the claim. Nobody wants a CCJ on their credit record.

Common Mistakes to Avoid

1. Not Including a Due Date on Invoices

If your invoice doesn't state a due date, the default is 30 days from delivery of goods/services or invoice date (whichever is later). But it's far better to state it explicitly: "Payment due within 14 days of invoice date."

2. Waiting Too Long to Chase

Interest starts accruing the day after the due date, but many businesses wait months before chasing. The longer you wait, the harder it becomes to recover the debt. Start chasing within 7-14 days of the due date.

3. Not Documenting Everything

Keep records of all communication about the invoice: emails, letters, phone call notes. If you end up in court, you'll need to show you made reasonable attempts to recover the debt.

4. Confusing Statutory Interest with Contract Terms

If your contract includes different interest terms (e.g., "2% per month"), you can claim whichever is higher: your contractual rate or the statutory rate. Most contracts don't specify interest terms, so the statutory rate applies.

5. Not Claiming Compensation

Many businesses know about the interest but forget about the fixed compensation. Always claim both—it's your legal right.

What About the Prompt Payment Code?

The Prompt Payment Code is a voluntary initiative where large companies commit to paying invoices within 60 days and not changing payment terms retrospectively. As of 2026, over 3,500 businesses have signed up.

However, the Prompt Payment Code is voluntary and has no legal force. The Late Payment Act gives you statutory rights that apply regardless of whether your client has signed the Code.

Tips for Getting Paid Faster

While you have legal rights, prevention is better than cure:

1. Send invoices promptly - Don't wait until month-end; invoice as soon as work is complete
2. Make payment easy - Include bank details, payment links, and multiple payment options
3. Set short payment terms - "Payment due within 14 days" is better than "Payment due within 30 days"
4. Chase early - Send a friendly reminder 2-3 days before the due date
5. Build relationships - Speak to your contact in accounts, not just your project manager
6. Consider payment upfront - For new clients or large projects, request 50% upfront

Automate Your Invoice Chasing

Manually calculating interest, writing reminders, and chasing payments is time-consuming and emotionally draining. That's where NotPaidYet comes in.

NotPaidYet automates the entire process:

• Automatic interest calculation using the latest Bank of England base rate
• Professional reminder emails that escalate from polite to formal
• Letter Before Action generation compliant with UK Pre-Action Protocol
• Payment tracking showing exactly how much you're owed (including interest)

Try NotPaidYet free for 7 days—no credit card required.

Summary: Your Late Payment Rights

To recap, when a business client pays your invoice late, you are legally entitled to:

1. Statutory interest at 8% + Bank of England base rate (currently 11.75%)
2. Fixed compensation of £40, £70, or £100 depending on invoice size
3. Recover court costs if you need to take legal action

You don't need special wording in your contract—these rights apply automatically under UK law to all B2B transactions.

Next steps:

• Calculate what you're owed using our free interest calculator
• Generate a Letter Before Action with our free LBA generator
• Automate your invoice chasing with NotPaidYet

Stop losing money to late payments. Your legal rights are there—use them.