Late payment fees in the UK: a complete guide

What a late payment fee is

1. Statutory interest is a daily charge on the overdue amount.
2. The compensation fee is a one-off fixed sum meant to cover the cost of chasing the debt.

You’re entitled to both the moment a business invoice becomes overdue.

When you can charge it

The right comes from the Late Payment of Commercial Debts (Interest) Act 1998, and it applies to business-to-business invoices (and to public sector customers).

It does not apply when your customer is a private individual buying as a consumer, which works differently. We cover that in our guide to whether late payment charges are legal in the UK.

You can charge interest from the agreed due date. If you never agreed a payment date, the invoice is treated as late 30 days after the customer received it or you delivered the goods or service, whichever is later. The right applies whether or not late fees are written into your contract, though having a clause helps if a customer pushes back.

How much you can charge

Statutory interest is set at 8% above the Bank of England base rate. It’s simple interest, charged on the outstanding amount, and it accrues daily, so the longer an invoice sits unpaid the more it grows.

The compensation fee is fixed and depends on the invoice amount:

On day one, even a large invoice won’t have built up much interest, but you can charge the compensation fee immediately, which makes it a useful prompt to pay. To work out the exact figure for a specific invoice, use our late payment fee calculator.

Adding the late fee to a Xero invoice

Xero has no built-in feature for late payment fees. The only action is to upvote this product thread suggesting they add this functionality:

To add a late fee manually, it’s best to raise the fee as a separate invoice rather than editing the original (overdue) one. That keeps the original invoice clean and it matters for VAT. Statutory interest and the compensation fee sit outside the scope of VAT, so they shouldn’t be mixed in with VATable lines.

We walk through the method in how to add late payment fees to invoices in Xero.

Should you actually charge it?

Most businesses never get round to applying a late fee and they don’t always need to. Often, telling a customer that statutory charges are about to start is enough to get the invoice paid, or at least get a reply. In these cases, the fee acts as a useful nudge. We cover how to handle that conversation in what to do after you calculate a late payment fee.

Applying late payment fees with Trove