Statutory interest on late commercial invoices: what a trade can actually charge

The short answer

The Late Payment of Commercial Debts (Interest) Act 1998 gives a UK business the automatic right to charge statutory interest, plus a fixed compensation sum, on a business-to-business invoice paid late, without needing to state it on the invoice first. The interest rate is 8% a year plus the Bank of England base rate in force on the relevant date, so the total changes as the base rate moves, and the fixed compensation sum ranges from £40 to £100 depending on the size of the debt. It's a right, not an obligation, and most small trades choose not to enforce it on customers they want to keep working with, relying on clear terms and consistent reminders instead.

Do you actually have the right to charge interest

Yes, and it applies automatically to business-to-business invoices under the Act, you don't need a clause in your terms and conditions for the right to exist, although stating your policy upfront is still good practice (more on that below). It covers commercial customers and subcontract work, including CIS invoices to a main contractor. It doesn't apply in the same automatic way to domestic, consumer customers, where different consumer protection rules govern late payment instead.

How to calculate it

The statutory rate is 8% a year above the Bank of England base rate. The base rate used isn't today's rate, it's fixed twice a year: the rate in force on 31 December applies to invoices that become overdue between 1 January and 30 June, and the rate in force on 30 June applies to invoices that become overdue between 1 July and 31 December. That means the rate you charge depends on when the invoice fell overdue, not when you're doing the calculating. The Small Business Commissioner publishes an interest calculator built specifically around this formula, which is the simplest way to get an exact figure without doing the maths by hand, since the base rate component changes periodically and is worth checking directly rather than assuming it's stayed the same since you last looked. On top of interest, you can also claim a fixed compensation sum per invoice: £40 for a debt under £1,000, £70 for a debt between £1,000 and £9,999.99, and £100 for a debt of £10,000 or more, and if your actual costs of recovering the debt exceed that, you can potentially claim the extra reasonable costs too.

Domestic customers vs commercial and subcontract work

This right exists specifically for commercial transactions, one business owing another. A homeowner who's paid you to fit a new bathroom isn't covered by the same automatic statutory interest right, a different, more consumer-protective set of rules applies there instead, and chasing a domestic customer is better handled through clear payment terms and a polite but firm reminder sequence rather than invoking commercial debt legislation that doesn't fit the relationship. Where it's most relevant for a trade is subcontract work, a main contractor paying you late on a CIS invoice is exactly the scenario the Act was designed around, including the common pattern of contractors stretching 30-day terms into 60 or 90 days in practice.

Should you actually enforce it

Most small trades don't, and that's a reasonable choice, not a mistake. Charging statutory interest against a customer or contractor you want repeat work from can sour a relationship over what's often a relatively modest sum, and plenty of late payment is genuinely about a contractor's own cash flow timing rather than bad faith. Where it's worth considering seriously is a persistently slow-paying contractor where the relationship's value is already in question, or where a payment is seriously overdue well beyond agreed terms, a point at which stating that interest is now accruing can itself prompt payment, even if you don't ultimately collect every penny of it.

Stating your policy on the quote, not after the fact

Even though the right exists automatically, naming it upfront changes how it lands if you ever need it. A line on your quote or terms along the lines of "payment due within 30 days; late payment may incur statutory interest under the Late Payment of Commercial Debts Act" sets the expectation before any work starts, rather than appearing as a surprise threat once an invoice is already overdue. It also signals, politely, that your payment terms are a real part of the agreement rather than a formality, which on its own seems to shift a few slow payers into paying closer to on time.

When to get help, and what we'd do

Working out statutory interest by hand on an occasional overdue invoice is manageable. It stops being manageable once you're chasing several overdue commercial invoices at a time and trying to remember which base rate period each one falls into. We'd set this up as part of quote and invoice automation through Xero or QuickBooks, with your payment terms stated clearly on every quote and a reminder sequence that reflects commercial terms properly, so a contractor invoice that's genuinely gone past its agreed terms gets flagged and chased on schedule, with the option to add statutory interest to the reminder wording if that's a step you want to take.

See the wider picture on chasing unpaid invoices as a trade business, and read automating quotes and invoices with Xero or QuickBooks for the general version of this setup.