Late Payment Law in the United Kingdom

The legal framework

The UK has one of the most creditor-friendly late-payment regimes in the world. The cornerstone is the Late Payment of Commercial Debts (Interest) Act 1998, supplemented by amendments in 2002 and 2013 that transposed EU Directive 2011/7/EU. Together they grant suppliers a statutory right to claim interest plus fixed compensation on overdue B2B invoices, **without needing a contract clause.**

The 2013 amendments are especially important: they introduced the tiered fixed compensation (£40 / £70 / £100 depending on invoice size) and created an additional right to claim "reasonable recovery costs" on top of the flat fee — meaning if the cost of chasing the invoice exceeded £40, you can claim the actual cost.

Post-Brexit (2020), the UK retained these protections in domestic law via the European Union (Withdrawal) Act 2018. The framework continues to apply to B2B transactions involving UK suppliers, regardless of whether the buyer is in the UK, EU, or rest of world.

• Statute: Late Payment of Commercial Debts (Interest) Act 1998 (as amended).
• Amendments: 2002 (transposition of original EU Directive), 2013 (tiered compensation + recovery costs).
• Scope: all B2B and B2G transactions where supplier is UK-based.
• Exclusions: consumer-to-business sales, charity exemptions, certain regulated transactions.
• Post-Brexit: retained in domestic law, no change in practice.

How statutory interest is calculated

The statutory rate is the Bank of England base rate plus 8 percentage points. The base rate is reviewed by the Monetary Policy Committee 8 times a year — the rate that applies to a given invoice is the base rate in force on the day the debt became overdue, applied for the entire period the debt remains unpaid (it does not float with subsequent base rate changes for that specific invoice).

As of 2026, the Bank of England base rate is approximately 5.25%, making the statutory rate 13.25% APR. Interest is calculated on a calendar-day basis (365 days/year, including weekends and bank holidays).

Interest is **simple**, not compound. Day 1 of interest is the day after the contractually-agreed payment date (or 30 days after invoice receipt if no date was specified). Interest stops accruing on the day full payment is received.

• Rate formula: BoE base rate (on the day debt became overdue) + 8 percentage points.
• Calculation: principal × rate × (days late / 365). Simple interest only.
• Day count: calendar days. Weekends, bank holidays, leap years all count.
• Day 1: the day after the contractual payment date (or 30 days after invoice receipt).
• Stop date: the day full payment arrives. Partial payments reduce the principal going forward.

The tiered flat fee

On top of statutory interest, you can claim a fixed compensation amount per overdue invoice. The amount is tiered:

— £40 for debts under £1,000 — £70 for debts of £1,000 to £9,999.99 — £100 for debts of £10,000 or more

This fixed compensation is automatic — you do not need to send a separate demand for it, and it does not depend on how late the invoice is. It accrues the moment the debt becomes overdue.

On top of the flat fee, you can claim "reasonable recovery costs" — actual money you spent chasing the debt. Examples: legal fees, debt collection agency fees, court filing fees, certified mail costs. If your recovery cost exceeded the flat fee, you can claim the difference.

• £40 tier: invoices under £1,000.
• £70 tier: invoices £1,000–£9,999.99.
• £100 tier: invoices £10,000 or more.
• Recovery costs above flat: claim actual collection costs that exceeded the flat fee.
• Per-invoice basis: each overdue invoice generates its own flat fee, even from the same client.

When the clock starts

Day 1 of overdue is the day after the **contractually-agreed payment date**. If your contract or invoice specified "Net 30 from invoice date" and the invoice was issued April 1, the due date is May 1 and interest starts accruing May 2.

If no payment date was specified in the contract or on the invoice, the statute defaults to **30 days from receipt**. Receipt is presumed if the invoice was emailed (and not bounced) or posted by recorded delivery. For larger contracts, the supplier and buyer can extend this default by mutual agreement, but **not beyond 60 days** for B2B (the statutory cap on agreed payment terms).

Public sector buyers face a stricter cap: 30 days for central government, 60 days maximum for any public body. Public sector buyers must also pay 2% per month interest plus the flat fee, similar to the EU directive.

• Day 1: the day after the contractually-agreed payment date.
• No date specified: defaults to 30 days from invoice receipt.
• B2B agreed-term cap: 60 days maximum, with limited exceptions where 90+ is reasonable.
• B2G: 30 days for central government, 60 days for other public bodies.
• Email + recorded delivery: sufficient to establish receipt for the legal record.

Enforcement: small claims and beyond

For invoices up to £10,000, the small claims track in England & Wales (Money Claim Online) is the most efficient enforcement route. Filing fees are 5% of the claim value (capped at £455 for the highest tier), no lawyer required, and most judgements are won by default when the defendant fails to respond.

For Scotland, the equivalent is Simple Procedure (cap £5,000) at the Sheriff Court. Northern Ireland has the Small Claims Process at the County Court (cap £3,000).

For larger disputes (£10,000+), the fast track and multi-track procedures apply. These typically require legal representation and become economically painful below £25,000–£50,000 unless the dispute is procedural rather than evidentiary.

Statutory demand under the Insolvency Act 1986 is a powerful pre-court tool for invoices over £750: it gives the debtor 21 days to pay or face a winding-up petition. For solvent businesses, the threat alone often produces payment — not for use against fragile clients you want to maintain a relationship with.

• Money Claim Online (E&W): up to £10K, 5% filing fee, online process, ~6-8 weeks to judgement.
• Simple Procedure (Scotland): up to £5K, Sheriff Court.
• Statutory Demand: 21-day pay-or-wind-up notice for debts over £750. High pressure tool.
• Fast track / multi-track: £10K–£100K+ disputes, lawyer typically required.
• Insolvency: CCJ + winding-up petition is the nuclear option. Very effective on solvent debtors.

Practical drafting for your contracts and invoices

Even though the UK statute applies automatically, you should still write the late-payment terms into your contract and invoice. The reasons: (1) it makes the rate visible during negotiation, (2) it avoids the ambiguity of "what was the BoE base rate on day X", and (3) it documents that the buyer was on notice when they signed.

Recommended contract clause: "Late Payment. Interest accrues on overdue invoices at 8% above the Bank of England base rate (or such rate as is then statutory under the Late Payment of Commercial Debts (Interest) Act 1998), plus a fixed compensation of £40, £70, or £100 per invoice depending on size, plus reasonable recovery costs. Calculated daily."

On the invoice itself, include a footer line: "Payment terms: Net 30. Late payment may incur interest at 8% above BoE base rate plus a £40-£100 fixed fee under the Late Payment of Commercial Debts (Interest) Act 1998."

• Contract clause: reference the statute by name; specify the rate explicitly; mention recovery costs.
• Invoice footer: one line referencing the rate and the statute. Visible to AP staff.
• Payment terms: be explicit. Default of "30 days from receipt" creates ambiguity.
• Avoid term > 60 days: the statute caps agreed terms at 60 days for most B2B; longer terms may be voided.