Late Payment – Your Right to be Compensated

The idea behind it is to make sure that businesses have the right to be compensated if they are paid late. Being paid late restricts working capital availability, may mean that businesses have to borrow unnecessarily and can potentially restrict growth or even endanger businesses.

Let’s have a look at your business’ rights to late payment interest and compensation and how you can use the legislation to your benefit.

What does the Act allow me to do?

The Late Payment of Commercial Debts (Interest) Act allows UK businesses and public sector organisations to claim interest and compensation if they are paid late.

What constitutes being paid late?

Businesses are entitled to claim when a debt remains unpaid after the date specified on the contract. In the absence of a contract, late is deemed to be 30 days after the date of the invoice.

What interest can I charge?

Where a business-to-business contract doesn’t specify an interest rate for late payment, the Act applies a statutory rate of 8% above the Bank of England base rate, calculated from the day after payment was due.

What compensation can I charge?

In addition to interest, businesses are entitled to a fixed compensation payment for the cost of recovering the debt. The entitlement works on a scale as follows:

A maximum of £100 can be claimed for each overdue debt. It can only be charged once, per debt and not per invoice. The distinction is important where several invoices are issued to chase one debt.

What happens if I have a contract with a customer that has a different compensation remedy?

If your terms and conditions specify a different interest rate for late payment, that rate applies instead, provided it’s not unreasonably punitive.

How do I exercise my rights to interest and compensation?

State your business’ intention to use its entitlement in all credit management documentation. This includes credit application forms, order confirmations, invoices, contracts, Terms of Trade, credit collection letters and e-mails. The following wording may be considered for businesses wishing to use their right to late payment interest and compensation:

“We understand and will exercise our statutory right to claim interest and compensation for debt recovery costs under the Late Payment legislation if we are not paid according to our agreed credit terms.”

How do I make a claim for interest and compensation?

Add interest and compensation to a revised invoice or set it out in a separate letter. State the original invoice amount, the due date, the date payment was received (or the current date if still unpaid), the interest calculated at the applicable rate, and the fixed compensation amount.

What happens if a customer partly pays an invoice?

Interest will keep accumulating on the unpaid amount.

What happens if I am concerned about the repercussions of claiming my rights?

Many customers pay promptly once they understand the claim is legally grounded and will be enforced. However, the Statute of Limitations applies to the Act, so you have six years to make the claim.

Is there anything new on the horizon?

The Act was never meant to be a ‘cure all’ for late payment, but rather to give businesses another tool in their credit management kit. However, in the King’s Speech at the opening of Parliament in May 2026, plans were announced for the Small Business Protections (Late Payments) Bill. Amongst other things this new legislation would make it illegal in the UK to sign payments terms in excess of 60 days, with mandatory interest to be applied to late paid invoices. This is very new and not law yet, so keep in the loop for developments.