Summary
- Yes, between businesses. The Late Payment of Commercial Debts (Interest) Act 1998 gives you a statutory right to apply late fees for businesses or public sector customers.
- An invoice is legally late the day after the agreed due date. With no agreed date, it’s 30 days after the later of delivery or the customer receiving the invoice.
- The base rate is fixed for six-month periods. Debts going late between 1 January and 30 June use the rate from the previous 31 December. Between 1 July and 31 December, the rate in force on 30 June. It doesn’t move if the Bank of England changes rate mid-period.
- Compensation is £40, £70 or £100 by invoice size, and you can claim reasonable recovery costs above that if you can evidence them.
- You don’t need a contract clause, but it’s worth having one. It sets expectations up front and gives you something to point to if the charge is disputed.
- Consumers work differently. For a private individual you need a contract term and the charge has to reflect your actual costs rather than act as a penalty.
- Statutory interest is 11.75% a year for debts that became late between 1 July and 31 December 2026 (a 3.75% base rate plus 8%).
- The Commercial Payments Bill is going through Parliament. It would cap payment terms at 60 days and make statutory interest impossible to contract out of. Nothing changes on your invoices yet.
The law behind it
The right comes from the Late Payment of Commercial Debts (Interest) Act 1998. It gives a business that’s owed money a statutory right to claim interest and a fixed compensation sum from a late-paying business customer.
It applies to business-to-business transactions and to public sector customers. It does not apply where your customer is a private individual buying as a consumer.
When an invoice legally becomes late
If you agreed a payment due date, the invoice is late the day after that due date passes (usually within 30 or 60 days).
If you didn’t agree a date, the law treats payment as late 30 days after the later of two points:
- The day the customer received the invoice, or
- The day you delivered the goods or service (if this is later).
This is part of the law and a non-negotiable of applying late payment fees.
Interest rates for late payment fees
Statutory interest is 8% above the Bank of England base rate.
The rate is technically fixed for six-month reference periods:
- For debts that become late between 1 January and 30 June, use the base rate from the previous 31 December
- For debts that become late between 1 July and 31 December, you use the rate in force on the previous 30 June
That reference rate then applies for the whole period, even if the Bank of England changes its base rate in the meantime.
This approach to fixing rates was part of the 2002 update to the 1998 Late Payment Act and is explained in government documentation here.
However, this guidance isn’t even on the government’s main late payment fee website so don’t worry if you have used the wrong rate historically.
What the rate is right now
The Bank of England base rate was 3.75% on 30 June 2026, so any debt that became late between 1 July and 31 December 2026 carries statutory interest of 11.75% a year. The rate for debts that go late from 1 January 2027 depends on the base rate on 31 December 2026.
Interest builds up daily. Take a £5,000 invoice paid 30 days late: £5,000 x 11.75% ÷ 365 x 30 days = £48.29 in interest. Add the £70 fixed compensation for an invoice of that size and you can claim £118.29.
Work out the exact figure with our late payment fee calculator.
How much compensation you can claim
On top of interest, you can claim a fixed compensation sum per overdue invoice:
| Invoice amount | Compensation fee |
|---|---|
| Up to £999.99 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
If your reasonable costs of recovering the debt are higher than the fixed sum - for example debt collection or legal fees - you can claim the difference on top, provided the costs are reasonable and you can evidence them.
Better still, avoid needing them. With a big new customer, check a customer’s payment record before you sign.
Do you need it in your contract?
No. The statutory right applies whether or not it’s in your terms. But including a clause is best practice, because it sets expectations up front and gives you something clear to point to if a customer disputes the charge. Here’s a sample paragraph:
Contract clause
If any invoice is not paid by the due date, we reserve the right to charge interest on the overdue amount at the statutory rate of 8% per annum above the Bank of England base rate, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998. We may also charge a fixed compensation fee for debt recovery costs as set out in the Act. Interest will accrue daily from the date payment becomes overdue until the date of actual payment.
Charging consumers is different
If your customer is a private individual rather than a business, the 1998 Act doesn’t apply. You can still charge a late fee, but only if it’s set out in your contract, and it has to be a reasonable reflection of your costs rather than a penalty. The flat statutory amounts above don’t apply to consumer invoices.
Late payment law is changing: the Commercial Payments Bill
The Commercial Payments Bill is the biggest change to UK late payment law since 1998. It keeps the rate you can charge, but takes away most of the ways a large customer can avoid paying on time or paying interest.
What the bill changes
| The law now | Under the bill | |
|---|---|---|
| Payment terms | Terms over 60 days are allowed if agreed and not grossly unfair to you. If they are grossly unfair, interest runs from day 60 | Terms over 60 days are void. Exceptions where the buyer is the smaller business, or both are large. 30 days if the buyer is a public authority |
| Late payment interest | 8% above base rate, implied into business contracts | Same rate, but any term that excludes or varies it is void |
| Late or vague disputes | No cost to the customer | You get a fixed sum if a customer disputes an invoice late or without enough detail |
| Settling a dispute | Negotiation or court | A small business can take a dispute with a larger customer to the Small Business Commissioner for a binding interim decision |
| Persistent late payers | Large companies publish their payment times twice a year | The Commissioner can investigate and fine them up to 1% of UK turnover. Boards must explain poor payment records |
| Construction retentions | Allowed | Banned, after a transition period |
Sources: GOV.UK bill overview, Macfarlanes and Travers Smith.
At the time of writing in October, this bill is still going through Parliament, so none of this is law yet. We’ll update this guide at each stage.
When it happens
| Stage | Date |
|---|---|
| Introduced in the House of Lords | 19 May 2026 |
| Second reading | 9 June 2026 |
| Committee stage | 21 July 2026 |
| Report stage | 15 September 2026 |
| Third reading in the Lords | 20 October 2026 (scheduled) |
| House of Commons | Not yet scheduled |
| 60-day cap in force | Not before 2027 |
The changes won’t apply to invoices, contracts or disputes from before they come in. Follow the bill’s progress on the UK Parliament site.
What to do now
- Keep charging statutory interest and compensation as you do today. The bill doesn’t change the 8% margin or the £40, £70 and £100 amounts.
- List any customers on terms longer than 60 days, especially large ones. Those terms will need to change once the cap is in force, so raise it at the next renewal.
- Put a late payment clause in your terms now. The sample wording above still works.
- Ask customers to raise any query as soon as they get an invoice, and note the date when they do. Under the bill, a late or vague dispute costs the customer.
- Keep a dated record of every reminder you send. If a large customer pays late again and again, that’s the evidence the Commissioner will want.
None of this changes your invoices today. The bill’s real effect is that big customers lose the option to set 90 or 120-day terms, or to write interest out of the contract.
If you would rather not work out interest manually, Trove can add statutory interest and compensation to overdue invoices for you. Here’s how late payment fees work in Trove. Interest and compensation can’t be chased in the usual way if your customer has gone into administration, so they become part of your claim.
Late payment law: common questions
Is there a new late payment law in the UK?
Not yet. The Commercial Payments Bill is going through Parliament, with its Lords third reading scheduled for 20 October 2026. Until it becomes law, the Late Payment of Commercial Debts (Interest) Act 1998 still applies.
What is the late payment interest rate in the UK right now?
11.75% a year for business debts that became late between 1 July and 31 December 2026. That’s the 3.75% base rate on 30 June plus 8%.
Can a supplier charge late fees on a trade account?
Yes, if you hold the account as a business. A trade account is a business-to-business contract, so the 1998 Act applies and the supplier can claim statutory interest and fixed compensation on overdue invoices. Check the account terms for the rate it actually uses. If it’s a personal account, consumer rules apply instead.
Will the 60-day cap apply to invoices I’ve already sent?
No. The government says the new rules won’t apply to payments, contracts or disputes from before they come into force.
Can I charge interest on overdue invoices without telling the customer first?
Yes. The right is automatic between businesses. It’s still worth telling the customer in your terms and on your reminders, because a charge they didn’t expect is harder to collect.
This is general information, not legal advice. For a specific situation, check with a qualified solicitor.
Treasure by Trove is a free late payment fee calculator that connects to Xero, with no card and no limits. If you want fees applied, chased and waived automatically, Trove runs a free 30-day trial or you can book a demo.
