Summary
- Recruitment agencies often avoid charging late fees to protect their customer relationship, but you have the same statutory right as anyone: 8% over base rate plus a £40/£70/£100 fixed fee.
- The approach that works: apply the fee as soon as the invoice is overdue, then offer to waive it for prompt payment.
- Put the wording in your terms, reference it in reminders, and raise the fee as a separate VAT-exempt invoice.
- Never apply late fees to a genuinely disputed invoice.
- Trove can calculate and raise UK late fees straight into Xero, so it’s applied consistently without the manual maths.
What late fees you’re actually entitled to charge as a recruitment agency
Recruitment agencies have the same legal right to charge late payment fees as anyone else. Under the Late Payment of Commercial Debts (Interest) Act, on any overdue business-to-business invoice you can charge:
- Statutory interest of 8% above the Bank of England base rate, calculated daily on the overdue amount.
- A fixed compensation fee of £40 (invoices under £1,000), £70 (£1,000 to £9,999), or £100 (£10,000 and over).
You don’t need it written into the contract to have the right but referencing it in your terms and reminders makes it land better. Our late payment fee calculator works out the exact figure, and our guide to whether late payment charges are legal in the UK covers the detail.
How to use late fees as a recruitment firm: apply, then offer to waive
There are two simple steps here:
- Apply the fee the moment the invoice is overdue and let the client know.
- In the same email, offer to waive it if the client settles the invoice within a short window.
The message is warm and reasonable: “Statutory late payment interest applies from the due date but we’re happy to waive it if the invoice is settled by Friday.”
This works for a few reasons:
- It creates a deadline. A specific date to act on beats an open-ended reminder and moves your invoice to the front of the queue.
- You keep the relationship. You come across as flexible and fair, which matters when you’re chasing an account you also sell to.
- It’s consistent and unemotional. The fee applies automatically to everyone, so it isn’t a personal escalation against one client.
Reserve the actual, un-waived fee for the persistent late payers where goodwill has already run out. For everyone else, the offer to waive is the whole point.
A quick example
A small perm agency started adding statutory interest to every invoice the day it went overdue, with a standing line offering to waive it for payment within five working days. Most clients paid inside the window and never paid a penny of interest - which was exactly the goal. The point was never the interest. It was giving a busy accounts payable team a reason to move this invoice to the top of the pile.
How to manage the admin of applying (and waiving) a late fee
- Put the wording in your terms of business. State that statutory interest and compensation apply to overdue invoices. It removes any surprise later.
- Reference it in your reminders. A line noting that interest applies from the due date, with the offer to waive for prompt payment, does the work.
- Raise the fee as a separate invoice. Xero has no built-in way to calculate or add late fees, so the standard method is a separate invoice for the interest and compensation set outside the scope of VAT. Here’s how to add late payment fees to invoices in Xero.
- Don’t apply it to disputed invoices. Late fees are for undisputed invoices that are simply overdue - not fees under a genuine rebate claim. See handling disputed perm fees and rebate clauses.
Where Trove fits
Doing this manually - calculating daily interest, raising a separate VAT-exempt invoice, tracking who’s been offered a waiver - is exactly the admin a busy MD skips. Trove can calculate and raise accurate UK late payment fees straight into your Xero account, so the fee is applied consistently the moment an invoice is overdue, without you working out the maths each time. Combined with reminders sent from your own inbox, you get the leverage of a late fee wrapped in a message that still sounds like you.
You can try the numbers now with the free late payment fee calculator. Trove runs a free 30-day trial and connects to Xero in about five minutes. Start a free trial or book a demo.
Frequently asked questions
Can I really charge late fees to a client I want to keep working with?
Yes - and applying it then offering to waive it for prompt payment is how you do it without friction. The client sees a discount for paying now rather than a penalty, so it rarely costs you goodwill.
Do late fees apply to both temp and perm invoices?
They apply to any undisputed overdue B2B invoice, temp or perm. The one exception is a perm fee genuinely under a rebate claim, which is a dispute rather than a late payment.
How much can I charge?
8% above the Bank of England base rate as daily interest, plus a fixed fee of £40, £70 or £100 depending on the invoice size. The calculator gives you the exact figure.
Late payment is a sensitive subject for a lot of small businesses, and charging fees can feel uncomfortable at first. Applied gently - as a waivable nudge rather than a penalty - it’s one of the most effective levers a small agency has.
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