Charging interest on late payments in the UK
Another invoice sails past its due date and you're wondering whether you're actually allowed to charge for the trouble. If it's a business customer, you almost certainly are, and most people never claim it.
Where it hurts
Under the Late Payment of Commercial Debts (Interest) Act, if another business pays you late you have a statutory right to charge interest. The rate is 8% plus the Bank of England base rate, running from the day payment was due until the day it's paid. You can also claim a fixed compensation sum per invoice and reasonable debt-recovery costs.
Two boundaries matter. First, it's a B2B right: it covers commercial debts between businesses, not consumer customers, so a tradesman invoicing a homeowner is in different territory to one invoicing a letting agent. Second, statutory interest isn't available where your contract already sets its own rate for late payment; if it does, that agreed rate is what you charge, not the statutory one.
The base rate part trips people up, though not the way you'd expect. You don't track every Bank of England move: the reference rate is fixed in six-month blocks. Interest that starts running between 1 January and 30 June uses the base rate from the previous 31 December; interest starting between 1 July and 31 December uses the rate from 30 June. One rate, picked by the date your interest started, and it isn't recalculated when the Monetary Policy Committee moves the base rate a month later. That makes the sum simpler than most guides suggest: annual rate, divide by 365 for the daily figure, multiply by the days overdue.
What I'd build
This is information, not legal advice, and a debt that turns nasty needs a professional. What I'd build is the mechanics: statutory interest wording on your invoice templates so the right is stated up front, and a calculator wired to your invoicing that knows the six-month rate rule, so any overdue invoice shows the correct interest and compensation without you touching a spreadsheet. Then the AI layer: it watches for invoices going overdue, drafts the chase emails (polite first, firmer later, quoting the running interest where it helps) for you to approve before anything sends, and flags which customers the B2B right actually covers. You see one list: what's overdue, what it's now worth, and which chase is drafted and waiting.
What changes
- Correct statutory interest wording and terms on your invoices
- A calculator that applies the right six-month reference rate automatically
- Clarity on which customers this covers and where a contract rate applies
- Chase drafts quoting the interest figure, sent only once you approve
Facts on this page last checked 12 July 2026, against legislation.gov.uk, gov.uk.
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