Can you charge interest on an overdue invoice? UK late payment rules

Yes. If your client is a business, the law lets you charge interest on an overdue invoice, and you don't need a clause in your contract to do it. The Late Payment of Commercial Debts (Interest) Act 1998 makes it an implied term of business-to-business contracts for goods or services.

The Act gives you three things to claim: statutory interest, a fixed compensation sum for each late invoice, and your reasonable costs of recovering the debt where they come to more than that sum. If your client is a private individual, the Act doesn't apply.

What you can claim from a business that pays late

Statutory interest. The rate is 8% a year over the Bank of England base rate, as gov.uk sets out. It's simple interest, not compounded, and it adds up daily for as long as the invoice stays unpaid.

Fixed compensation. Once interest starts to run, you're also entitled to a fixed sum under section 5A of the Act. The amount depends on the size of the debt, and you can charge it once for each late payment, not each time you chase.

Reasonable recovery costs. If recovering the debt costs you more than the fixed sum, for example a debt collection agency's fee or a solicitor's letter, the same section lets you claim the difference. The Act doesn't define "reasonable", so keep the receipts and keep the cost in proportion to what you're owed.

Who it applies to, and who it doesn't

The Act covers a contract where you and your client are each acting in the course of a business. That includes limited companies, partnerships and public bodies. A client who's a sole trader counts too, as long as they bought the work for their business.

It doesn't cover a private individual buying for themselves, such as someone who hires you to photograph a family wedding. With a private client you can only charge the interest your contract sets out, at a fair rate: a term that works as a penalty can be challenged as unfair under the Consumer Rights Act 2015. If you end up suing, the county court in England and Wales can add interest at a rate it decides.

With a business client, check your contract too. If it sets its own interest rate for late payment, that replaces statutory interest only where it's a substantial remedy. A term that simply removes your right to interest is void, and a token rate is unlikely to count. Whether a client's rate passes that test is a legal judgement, so take advice before you write the claim off.

When the interest starts

Interest starts the day after the payment date you agreed. If the invoice was due on 3 March, interest runs from 4 March.

If you never agreed a payment date, the law treats the invoice as late 30 days after the client got the invoice or you delivered the work, whichever is later. Long terms have a limit too. Between businesses, an agreed period should usually be no more than 60 days, and a longer one stands unless it's grossly unfair to you, in which case interest starts after day 60.

The rate is set once for each invoice and doesn't move after that. For interest that starts in the first half of the year, use the base rate in force on the 31 December before. For interest that starts in the second half, use the rate on 30 June. That comes from the order that sets the rate, and the Bank of England publishes the base rate and its history.

How to work out the sum

Interest is the unpaid amount, times the annual rate, times the number of days late, divided by 365. Gov.uk has a worked example that gets a daily amount first.

Or skip the maths. Our free late payment interest calculator takes the invoice amount and the due date, and gives you the interest, the fixed compensation and the total the client now owes. Switch it to a private client and it uses the rate from your contract instead.

How to claim it on an invoice

Gov.uk's advice is short: send a new invoice if you decide to add interest. Leave the original invoice as it is, so the debt and the claim stay separate. The new one should show:

• the original invoice number, amount and due date
• the interest, with the rate, the dates it covers and the daily amount
• the fixed compensation for that size of debt
• any recovery costs above it, with the receipts
• a line saying interest keeps running at the daily amount until the original invoice is paid

Claiming is your choice. You can waive it for a client who pays a few days late and says sorry, and claim it from one who goes quiet. Either way, warn business clients up front with a line on every invoice. Our guide to invoices that get paid has the wording.

What to say in a chaser

When the invoice is overdue, mention the Act plainly and without threats. A line like this fits a second or third reminder:

"Invoice [number] for [amount] was due on [date] and is still unpaid. As this is a business-to-business debt, statutory interest is now running under the Late Payment of Commercial Debts (Interest) Act 1998, along with fixed compensation for the cost of recovery. The total to date is [total], and the invoice for it is attached. Please pay both by [date]."

Give a real date, not "as soon as possible". If that passes, the next step is a letter before action, which the courts' pre-action rules expect before you sue. Our guides to chasing an unpaid invoice by email, the letter before action and small claims court take it from there.

What the Commercial Payments Bill would change

The government's late payment Bill, formally the Commercial Payments Bill, was introduced in the House of Lords in May 2026. At the time of writing it still has to pass the House of Commons and get Royal Assent, and no start date has been set. It isn't law yet, so don't quote it to a client who's paying late today.

As amended in the Lords, the Bill would:

• cap payment terms between businesses at 60 days, or 30 days for a public body, with written exceptions where the client is the smaller business
• stop a contract from excluding or changing your right to statutory interest, closing the "substantial remedy" route described above
• set a deadline for a client to dispute an invoice, with a fixed sum to pay you if they raise it late
• let the Small Business Commissioner settle payment disputes for small businesses, investigate persistent late payers and fine them

The changes to payment terms, interest and disputes wouldn't reach contracts signed before they start. Until then, your rights are the ones above.

The bottom line

If a business pays you late, you can charge statutory interest from the day after the due date, plus a fixed sum and any reasonable recovery costs above it. Check the client is a business and your contract doesn't set a substantial remedy of its own. Then run the numbers in the calculator and send them as a new invoice. The Commercial Payments Bill would make these rights harder to sign away, but until it passes, the 1998 Act is what you claim under.