Late Payment Interest: Claiming It From UK Clients
If a business client pays you late, UK law usually lets you claim statutory interest and a fixed sum for debt recovery costs. Many freelancers never use these rights because they are unsure how. This guide explains when a payment counts as late, how statutory late payment interest works and how to claim it without wrecking the relationship. It is general information, not legal advice.
Key takeaways
- The Late Payment of Commercial Debts (Interest) Act 1998 applies to business to business transactions.
- If no payment date is agreed, payment is late 30 days after the client gets the invoice or you deliver, whichever is later.
- Statutory interest is 8% plus the Bank of England base rate, unless your contract sets a different rate.
- You can also claim fixed compensation of £40, £70 or £100 depending on the size of the debt.
- To claim interest, send the client a new invoice for it.
Late payment is one of the biggest headaches of freelance life. You did the work, you sent the invoice, and now your money is sitting in someone else's bank account while your own bills fall due. As a sole trader or freelancer, you are a small business, and the law gives small businesses tools to push back.
This article focuses on the legal side: statutory interest and compensation. For the wider process of chasing late payers, polite reminders and preventing late payment in the first place, see our separate guide on handling late-paying customers.
When the late payment rules apply
The statutory rules cover payments between businesses, which includes sole traders and limited companies billing other businesses or public sector bodies. They do not cover invoices to consumers, meaning private individuals buying for personal use.
- Business clients: companies, sole traders, partnerships and other organizations buying in the course of business.
- Public authorities: such as councils and government bodies, which have their own expected payment terms.
- Not consumers: if you invoice a private individual, the statutory interest rules in this article do not apply in the same way.
Common mistake
Assuming you cannot claim anything because your contract did not mention late payment. Statutory interest applies by law to business transactions unless the contract sets a different, substantial remedy. Missing wording in your terms does not cancel your rights.
When is a payment actually late?
The answer depends on whether you agreed a payment date.
| Situation | When payment becomes late |
|---|---|
| No payment date agreed | 30 days after the client receives the invoice or you deliver, whichever is later |
| Payment terms agreed with a business | On the agreed date. Terms are usually up to 60 days, longer only if fair to both sides |
| Public authority client | Terms are usually up to 30 days |
Putting clear payment terms in your contract and on every invoice removes any doubt about when the clock starts. If your terms say "payment due within 14 days of invoice" and the client agreed to them, a payment is late from day 15.
Pro tip
Keep evidence of when the client received your invoice, such as the sent email or a delivery receipt from your invoicing software. If a dispute arises about when payment became late, that record is valuable.
How statutory interest is calculated
Statutory interest is 8% a year plus the Bank of England base rate, for business to business transactions, unless your contract specifies a different rate. The base rate used is the one in force on a fixed reference date, so check GOV.UK for how to find the right figure for your debt.
The interest is simple, not compound. A straightforward way to work it out:
- Find the annual rate. Add 8% to the relevant Bank of England base rate.
- Work out the yearly interest. Multiply the amount owed (excluding any interest already claimed) by that rate.
- Find the daily interest. Divide the yearly interest by 365.
- Multiply by days late. Count the days from when the payment became late to the day it is paid.
Example
Imagine a freelance designer owed £3,000 by a business client, paid 40 days late. For illustration only, suppose the base rate were 4%, giving an annual rate of 12%. Yearly interest would be £360, daily interest about £0.99, and interest for 40 days about £39.45. Because the debt is between £1,000 and £9,999.99, she could also claim £70 fixed compensation. These figures are made up; use the actual base rate that applies to your debt.
Fixed debt recovery compensation
As well as interest, you can claim a fixed sum to cover the cost of recovering the debt. The amount depends on the size of the debt.
| Amount of the debt | Fixed compensation |
|---|---|
| Under £1,000 | £40 |
| £1,000 to £9,999.99 | £70 |
| £10,000 or more | £100 |
This compensation is in addition to interest. GOV.UK explains how it applies, including what happens if your reasonable recovery costs are higher, so check the guidance before claiming more than the fixed sum.
Writing late payment into your terms
Statutory interest applies whether or not your contract mentions it, but clear terms make claiming far smoother. Clients who agreed to written terms find it harder to argue later, and the conversation shifts from "can you charge this?" to "this is what we agreed".
Useful points to include in your contract or terms of business:
- The payment period, stated in days from the invoice date, within the limits that are fair for business transactions
- Accepted payment methods and the reference the client should use
- A statement that late payments may attract statutory interest and fixed debt recovery compensation
- Whether you can pause work if invoices remain unpaid
- Who in the client's business is responsible for approving and paying invoices
If you want to set your own contractual rate instead of relying on the statutory one, take care. The rate needs to be a substantial and fair remedy, and an accountant or solicitor can help you word it properly.
How to claim late payment interest
Claiming is mostly an administrative step. You do not need a solicitor to send a claim for interest.
1. Remind the client first
Many late payments are caused by lost invoices or slow approval processes. A polite reminder that the invoice is overdue, with a copy attached, often solves the problem. Mention that statutory interest may apply if payment is not made.
2. Send a new invoice for interest and compensation
To claim interest, send the client a new invoice for it. Do not edit the original invoice. Your interest invoice should reference the original invoice number, show the amount overdue, the dates used, the rate, the interest calculated and any fixed compensation claimed.
3. Keep records
Record the interest invoice in your bookkeeping system. Interest and compensation you receive form part of your business income, so include them in your records for your Self Assessment return.
4. Escalate if necessary
If the client still does not pay, you can consider a formal letter before action, mediation or a court claim. Smaller claims can often be made online through GOV.UK. Take advice before going to court, especially for larger sums.
Weighing up whether to claim
You are entitled to claim, but it is not always the right business decision. Think about the relationship and the size of the debt.
Reasons to claim
- Compensates you for the cost of waiting
- Signals that you take payment terms seriously
- Often prompts payment of the original invoice
- Discourages repeat late payment
Reasons to hold back
- May strain a valuable long-term relationship
- Small amounts may not justify the admin
- A genuine one-off delay may deserve goodwill
- The client may dispute the dates or amount
Questions to ask yourself
- Is this the first late payment from this client, or part of a pattern?
- Did the delay have a clear cause, such as a missing purchase order, that you could have prevented?
- How much future work do you expect from this client, and how much does it matter to you?
- Would the interest and compensation make a meaningful difference to your cash flow?
- Are you prepared to follow through if the client refuses to pay the interest?
If a client is consistently late, the answer may be less about interest and more about changing your terms. Options include asking for a deposit before work starts, invoicing in smaller stages, shortening payment terms for new work or, in some cases, deciding that the client is not worth the stress.
Some freelancers use statutory interest mainly as leverage: they mention it in reminders and waive it if the client pays promptly. Others claim it every time to make their terms clear. Either approach is fine, as long as you choose deliberately.
Your late payment action plan
- Add clear payment terms to your contract and every invoice
- Keep proof of when each invoice was sent and received
- Send a polite reminder as soon as an invoice is overdue
- Check the current Bank of England base rate guidance on GOV.UK
- Calculate interest and the right fixed compensation
- Send a separate invoice for interest and compensation
- Record any interest received as business income
Frequently asked questions
Can I charge late payment interest to individual customers?
The statutory scheme covers business to business transactions. If you invoice consumers, different rules apply, and you would generally need clear, fair terms agreed in advance. Check GOV.UK or take advice.
Can my contract set a different interest rate?
Yes. If your contract sets a different rate, that rate usually applies instead of the statutory one. The contract remedy must be substantial and fair, otherwise statutory interest may still apply.
Do I need to warn the client before claiming?
It is not strictly necessary, but it is good practice. Mentioning statutory interest in your terms and reminders sets expectations and often gets you paid without having to claim.
Related reading
The bottom line
When a business client pays late, you can usually claim statutory interest at 8% plus the Bank of England base rate and fixed compensation of £40, £70 or £100, depending on the debt. Set clear terms, remind politely, and if needed send a separate invoice for the interest and compensation.
This is general information, not legal advice. Rules and rates can change, so check the latest guidance on GOV.UK and consider professional advice before taking legal action.
