Late payment interest: the 8% statutory rate and how to claim it

Where the right comes from

Section 1 of the Late Payment of Commercial Debts (Interest) Act 1998 implies a term into every contract to which the Act applies: any qualifying debt created by the contract carries simple interest in accordance with the Act. The term is implied by statute, so it is in the contract whether or not anybody wrote it there, and the interest it produces is treated as though the parties had agreed it expressly.

Section 2 says which contracts. The Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, and business is defined widely enough to include a profession, a government department and a local authority. It does not apply to consumer contracts, consumer credit agreements, or contracts operating as a mortgage or other security. Section 3 defines a qualifying debt as a debt created by an obligation under such a contract to pay the whole or any part of the contract price.

So the right arises automatically on an ordinary unpaid invoice between two businesses for goods delivered or work done. It does not depend on the invoice mentioning interest or on the terms of business having been sent. The Act applies throughout the United Kingdom, having been brought into force in stages between 1998 and 2002.

When a debt becomes late

Section 4 sets the day interest starts. Statutory interest runs from the day after the relevant day for the debt, and the relevant day is the agreed payment date if there is one. Where the contract sets no date, the relevant day is the last day of the 30-day period that begins with the latest of three events: the supplier performing its obligation, the purchaser receiving notice of the amount of the debt, which in practice means the invoice, or the completion of any procedure for accepting or verifying the goods or services that the contract provides for.

The practical rule, which GOV.UK puts in one sentence, is that where no date has been agreed the payment is late 30 days after the customer gets the invoice or after the goods are delivered or the service provided, whichever is later.

Two points catch suppliers out. Interest runs from the day after the due date, so a debt due on 31 July is late on 1 August. And a genuinely disputed invoice may not carry interest on the disputed part until the dispute is resolved. Our guide to debt recovery covers checking a debt before chasing it.

The rate, and the base rate today

Section 6 of the Act leaves the rate to be set by order, and the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 fixes it. Article 4 provides that the rate is 8% a year over the Bank of England's official dealing rate, now called Bank Rate, in force on a reference date. For interest starting to run between 1 July and 31 December, the reference date is 30 June of that year. For interest starting between 1 January and 30 June, it is 31 December of the year before.

Section 4(2) adds the piece most people miss: statutory interest runs at the rate prevailing at the end of the relevant day. The rate is fixed once, on the day the debt fell due, and it stays at that figure until the debt is paid, however Bank Rate moves in between. A debt that fell due in a high-rate period keeps its high rate for years; a debt that fell due in a low-rate period keeps its low rate.

On the Bank of England's Bank Rate page as read on 22 September 2026, Bank Rate is 3.75%. The Monetary Policy Committee held it at 3.75% on 18 June 2026, on 30 July 2026 and again on 17 September 2026, so the rate in force on 30 June 2026, the reference date for any debt falling due between 1 July and 31 December 2026, was 3.75%. Statutory interest on a debt that became late in that period therefore runs at 11.75% a year.

Check the Bank of England page for the rate on the relevant reference date before quoting a figure in a demand.

The fixed compensation

Section 5A entitles the supplier to a fixed sum of compensation for the cost of recovering each debt, payable once statutory interest begins to run on it. The amounts are set by the size of the debt: £40 for a debt of less than £1,000, £70 for a debt of £1,000 or more but less than £10,000, and £100 for a debt of £10,000 or more.

The sum is per debt, and GOV.UK confirms it can be charged once for each payment. A customer who pays ten invoices late owes ten fixed sums, and it is often the part of a demand a debtor pays first, because it is small, certain and embarrassing to argue about.

The Late Payment of Commercial Debts Regulations 2013, in force from 16 March 2013, added section 5A(2A): where the supplier's reasonable costs of recovering the debt exceed the fixed sum, the supplier is entitled to the difference as well. A solicitor's letter before action, or a debt collection agency's fee, can therefore be recovered on top of the fixed sum where it was reasonable to incur it. The fixed sum needs no evidence; the excess does.

A worked calculation

Take an invoice for £8,000 for services completed and invoiced on 1 July 2026, on the supplier's standard 30-day terms, so payment fell due on 31 July 2026. It is still unpaid on 22 September 2026.

Interest started to run on 1 August 2026, the day after the relevant day. The reference date for a debt falling due in the second half of 2026 is 30 June 2026, when Bank Rate was 3.75%, so the statutory rate is 3.75% plus 8%, which is 11.75%.

The annual interest is £8,000 multiplied by 11.75%, which is £940. The daily interest is £940 divided by 365, which is £2.575. From 1 August to 22 September 2026 inclusive is 53 days, so the interest to date is 53 multiplied by £2.575, which is £136.49. Interest continues at £2.58 a day until payment.

The debt is £1,000 or more and less than £10,000, so the fixed compensation is £70. The demand on 22 September 2026 is therefore £8,000 for the invoice, £136.49 in statutory interest and £70 compensation, a total of £8,206.49, plus £2.58 for each further day.

Item	Basis	Amount
Invoice	Due 31 July 2026	£8,000.00
Statutory interest	11.75% a year, 1 August to 22 September 2026, 53 days	£136.49
Fixed compensation	Section 5A, debt between £1,000 and £9,999.99	£70.00
Total on 22 September 2026	Plus £2.58 a day thereafter	£8,206.49

30 days, 60 days and unfair payment terms

The 2013 Regulations, implementing a European directive on late payment, put limits on how long a purchaser can make a supplier wait. Section 4(2E) provides that where the parties agree a payment date later than 60 days after the trigger events, the relevant day is treated as the last day of that 60-day period, so interest runs from day 61 regardless of the longer term. Section 4(2F) disapplies that cap where the agreed payment day is not grossly unfair to the supplier, and section 4(7A) says that gross unfairness is judged on all the circumstances, including whether the term is a gross deviation from good commercial practice and contrary to good faith and fair dealing, the nature of the goods or services, and whether the purchaser has any objective reason to depart from the 60 days.

For a public authority the limit is 30 days and there is no unfairness exception: section 4(2D) provides that the relevant day can be no later than the last day of the 30-day period whatever was agreed.

The Regulations also limit the verification period. Where the contract provides a procedure for accepting or verifying the goods or services, that procedure is treated as taking no more than 30 days from delivery, unless a longer period is agreed and is not grossly unfair.

The effect for a supplier on a large customer's 90-day or 120-day terms is that statutory interest may run from day 61 even though the contract says otherwise, unless the customer can justify the longer term. Whether to invoke that against a customer worth keeping is a commercial question.

If your contract has its own interest clause

Many terms of business contain an interest clause of their own, and the two regimes interact under sections 8 and 9 of the Act.

Section 8(1) makes void any contract term purporting to exclude the statutory right unless the contract provides a substantial contractual remedy for late payment. Section 8(2) provides that where the parties have agreed a substantial contractual remedy, the debt carries that remedy and no statutory interest, unless they agree otherwise. Section 8(3) allows the statutory right to be varied, again only where what remains is substantial.

Section 9 defines substantial. A remedy is substantial unless it is both insufficient to compensate the supplier for late payment or to deter it, and such that it would not be fair or reasonable to allow the purchaser to rely on it in place of the statutory right. The court looks at the benefit of commercial certainty, the relative bargaining strength of the parties, whether the term was imposed by one party through standard terms, and whether the supplier received anything in return for accepting it, all judged at the time the contract was made.

The practical reading is this. A supplier's own terms providing for interest at 4% over base rate are probably a substantial remedy and displace the statutory rate, so the supplier gets 4% over base and the fixed compensation may not be available either. A purchaser's standard terms imposing interest at 1% a year are unlikely to be substantial, and the statutory rate applies despite them. GOV.UK puts it shortly: you cannot claim statutory interest if there is a different rate of interest in the contract. The qualification is that the different rate has to be a real one.

A supplier drafting terms should therefore choose. Either rely on the Act, and say so, or write a clause that is at least as good as the Act, because writing a weaker one achieves nothing except an argument.

How to demand it

There is no formality. The interest and compensation are owed as a matter of contract, so the supplier states them in writing, shows the calculation, and asks for payment. GOV.UK suggests sending a new invoice for them, which gives the sum an invoice number to chase.

A demand should set out the original invoice and its due date, the day interest started, the reference date and the Bank Rate on it, the resulting statutory rate, the daily figure, the day count to the date of the letter, the fixed compensation with the band it falls in, and the total, with a statement that interest continues at the daily figure until payment. Laid out that way it is difficult to argue with, and a debtor who wants to dispute it has to say which number is wrong.

The interest is simple and does not compound. Where the debtor pays the principal and ignores the interest, the interest and compensation remain owed and can be claimed on their own.

Using it before a claim

The Act's value to a supplier is mostly in what it does before anybody goes to court. A letter before action that claims the invoice alone invites the customer to treat the delay as free. A letter that claims the invoice, interest at 11.75% from a stated date, £70 or £100 of compensation and the cost of the letter itself tells the customer that every further week has a price, and that the supplier knows the rules.

Three uses follow. First, in the letter before action, where the calculation is set out in full so that the sum claimed if proceedings are issued is already on the table. Second, in negotiation, where a supplier can offer to waive the interest and compensation in return for immediate payment of the principal, which gives the customer something to accept. Third, in the claim itself, where the interest and compensation are pleaded as sums due under the contract, and interest continues to the date of judgment.

What the Act does not do is make a bad debt good. A customer that cannot pay the invoice cannot pay the interest either, and a customer that disputes the invoice on substantial grounds will dispute the interest with it. Where the debt is clear and the customer is solvent, the Act adds a real sum and real pressure. Where it is not, the tools further along the debt recovery ladder are the ones that matter.

Frequently asked questions

What is the statutory interest rate for late payment?

8% a year over the Bank of England base rate, under the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002. The base rate used is the one in force on 30 June for debts falling due between 1 July and 31 December, and on 31 December for debts falling due between 1 January and 30 June. Bank Rate was 3.75% on 30 June 2026 and was held at 3.75% on 17 September 2026, so a debt that became late in the second half of 2026 carries interest at 11.75%, fixed for the life of the debt.

How much compensation can I add to a late invoice?

A fixed sum under section 5A of the Late Payment of Commercial Debts (Interest) Act 1998: £40 for a debt under £1,000, £70 for a debt of £1,000 or more but under £10,000, and £100 for a debt of £10,000 or more. It is payable once per late debt, so each late invoice carries its own sum. Since the 2013 Regulations you can also recover the reasonable costs of recovery above the fixed sum, such as a solicitor's letter, where it was reasonable to incur them.

When does an invoice become late?

On the day after the agreed payment date, if the contract sets one. If it does not, the debt is late 30 days after the customer receives the invoice or the goods are delivered or the service performed, whichever is later, with a further allowance where the contract provides an acceptance or verification procedure. Interest runs from the day after the due date. Agreed terms longer than 60 days are cut back to 60 unless the longer period is not grossly unfair to the supplier, and public authorities are held to 30 days.

Can I claim statutory interest if my contract has its own interest clause?

Usually not, if the clause is a real one. Section 8 of the Act provides that where the contract gives a substantial contractual remedy for late payment, the debt carries that remedy instead of statutory interest. Section 9 treats a remedy as substantial unless it is insufficient to compensate or deter and it would be unfair to let the purchaser rely on it, judged on bargaining strength and whether the term was imposed by standard terms. A token rate in a customer's standard terms is unlikely to be substantial, and the statutory rate then applies.

Does the rate change if the Bank of England moves base rate?

No. Section 4(2) of the Act provides that statutory interest runs at the rate prevailing at the end of the relevant day, which is the day the debt fell due. The rate is fixed on that day by reference to Bank Rate on the preceding 30 June or 31 December, and it stays at that figure until the debt is paid however Bank Rate moves afterwards. A debt that fell due when rates were high keeps its high rate for as long as it remains unpaid.

Can I charge late payment interest to a consumer?

No. The Act applies only where both the supplier and the purchaser are acting in the course of a business, and it excludes consumer credit agreements and contracts operating as security. Interest on a consumer debt depends on the contract terms, which are subject to consumer protection rules, and on the court's power to award interest in a claim. The statutory rate and the fixed compensation are business-to-business rights.

Do I have to claim interest for it to be owed?

The right exists from the day the debt is late, because the Act implies it into the contract, but it will not be paid unless it is claimed. Set it out in writing with the calculation, or send a separate invoice for it as GOV.UK suggests. If the customer pays the principal and ignores the interest and compensation, those sums remain owed and can be pursued on their own. Many suppliers choose to waive them in return for prompt payment of the principal, which is a legitimate use of the right.

Sources & further reading

• Late Payment of Commercial Debts (Interest) Act 1998, section 2
• Late Payment of Commercial Debts (Interest) Act 1998, section 4
• Late Payment of Commercial Debts (Interest) Act 1998, section 5A
• Late Payment of Commercial Debts (Interest) Act 1998, section 8
• Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002, article 4
• Late Payment of Commercial Debts Regulations 2013
• GOV.UK: late commercial payments, charging interest
• Bank of England: Bank Rate

This article is general information, not legal advice. The law changes and depends on your circumstances — always take advice on your specific situation before acting. Last reviewed 22 September 2026. AD Solicitors Limited is a recognised body regulated by the SRA (no. 8011228).