What is the Late Payment of Commercial Debts Act?
The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses the statutory right to claim interest on late payments from other businesses. You do not need to have agreed this in your contract because the right applies automatically to all B2B transactions. Many small businesses are unaware of this right and fail to exercise it.
What interest rate can I charge?
The statutory interest rate is the Bank of England base rate plus 8%. This is significantly higher than commercial borrowing rates, reflecting the cost and disruption that late payment causes to small businesses. The rate is calculated daily on the outstanding invoice value from the date payment was due.
What is the fixed compensation?
In addition to interest, you can automatically claim a fixed compensation amount per invoice: £40 for invoices under £1,000, £70 for invoices between £1,000 and £9,999, and £100 for invoices of £10,000 or more. This compensation is intended to cover the administrative cost of chasing late payment.
Does this apply to all customers?
The Late Payment Act applies to commercial transactions between businesses. It does not apply to payments from consumers (B2C transactions). It applies to both limited companies and sole traders dealing with other businesses.
What if my customer still does not pay?
If your customer does not pay after receiving a late payment notice, your options include making a claim through HMCTS Money Claims Online, issuing a statutory demand, or instructing a debt recovery solicitor. For amounts up to £10,000 this is usually the small claims track. Always take professional advice for significant unpaid debts.