Late Payment Law: Charge Interest on Overdue Invoices

You Have the Legal Right to Charge Interest on Late Invoices

Most UK freelancers do not know this: you are legally entitled to charge interest on overdue invoices without a contract clause requiring it. The Late Payment of Commercial Debts (Interest) Act 1998 gives this right automatically to any business selling goods or services to another business.

You do not need to threaten legal action. You do not need a solicitor. You simply need to know the rules and apply them.

What the Law Entitles You To

When a business invoice goes unpaid past its due date, you can claim:

1. Statutory interest at 8% above the Bank of England base rate per year

This applies from the day after the payment deadline. With the base rate currently around 4.75%, the total statutory interest rate is approximately 12.75% per annum.

For a £5,000 invoice paid 60 days late, that is roughly £105 in interest. Small amounts matter — and the existence of the charge often motivates payment far more than the amount itself.

2. Fixed debt recovery compensation

Regardless of how much interest accrues, you are entitled to a fixed sum to cover your recovery costs:

• £40 for debts under £1,000
• £70 for debts between £1,000 and £9,999
• £100 for debts of £10,000 or more

These figures apply per invoice, not per client.

3. Reasonable recovery costs beyond the fixed amount

If your actual costs of recovering the debt exceed the fixed compensation (for example, if you hire a debt collection agency), you can claim those additional costs too.

When Does the Act Apply?

The Act applies when:

• You are a business (including sole traders and freelancers)
• Your client is also a business (not a private individual)
• The contract is for goods or services
• No payment date is agreed — in which case, payment is due 30 days from invoice delivery

If you sell to consumers, different rules apply and the Act does not cover that relationship.

How to Apply It

Step 1: Let the invoice go overdue. You cannot charge interest before the due date.

Step 2: Calculate the interest owed. You can use the government's free late payment interest calculator.

Step 3: Send an updated invoice or a separate statement including:

• Original invoice amount
• Number of days overdue
• Interest rate applied (8% + Bank of England base rate)
• Interest amount
• Fixed compensation amount
• New total due

Step 4: Give a reasonable deadline for payment of the full amount (7–14 days is common).

Will Charging Interest Damage Your Client Relationship?

This is the question most freelancers ask — and the honest answer is: it depends on how you handle it.

If you apply interest routinely, professionally, and without aggression, most business clients respect it. They understand the Act exists. A simple line like "Interest has accrued under the Late Payment of Commercial Debts Act — I have included this on the updated statement" is factual and professional.

If a client is angry about being charged interest on a 90-day overdue invoice, that tells you something important about how they treat suppliers. Some client relationships are not worth preserving.

Preventing Late Payments Before They Happen

Interest is compensation after the fact. Prevention is better:

• Use automated payment reminders — InvoicePulse sends reminders at 7, 14, and 30 days overdue automatically
• Include a late payment clause in your contract referencing the 1998 Act
• Require a deposit before starting work with new clients
• Set 14-day rather than 30-day payment terms for new client relationships

The combination of automation and clear terms eliminates most late payments before they become a problem.