What is Statutory Late Payment Interest?
Statutory interest is the legal right of UK businesses to charge interest on overdue commercial invoices under the Late Payment of Commercial Debts Act 1998.
Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses have a statutory right to charge interest on late payments from other businesses and the public sector. You do not need to include any special terms in your contract — it is an automatic legal right.
Interest rate: The statutory rate is 8% per annum above the Bank of England base rate. The base rate is set by the reference rate applicable on either 31 December or 30 June — whichever date immediately precedes the date the debt became late.
How to calculate: 1. Take the invoice amount (or unpaid balance) 2. Apply the daily interest rate: (8% + base rate) ÷ 365 3. Multiply by the number of days overdue
Example: £5,000 invoice, base rate 5.25%, 45 days late Daily rate = (8% + 5.25%) ÷ 365 = 0.03630% Interest = £5,000 × 0.0003630 × 45 = £81.68
Fixed compensation: In addition to interest, you can claim a fixed sum for the cost of recovering the debt: - £40 for debts up to £999.99 - £70 for debts between £1,000 and £9,999.99 - £100 for debts of £10,000 or more
Important notes: - This only applies to business-to-business (B2B) and business-to-public sector debts - It does not apply to consumer debts - You can charge interest even if your contract does not mention it - Contractual interest terms cannot be less generous than the statutory rate (unfair contract terms rules) - You can choose to charge interest or not — it's a right, not an obligation
Examples
A consultant charges £81.68 in statutory interest on a £5,000 invoice paid 45 days late
A builder adds £70 fixed compensation plus interest to a £3,000 invoice that is 60 days overdue
A designer includes a note on invoices: 'We reserve the right to charge statutory interest on late payments'
Related Terms
Net 30
Net 30 is a payment term meaning the full invoice amount is due within 30 days of the invoice date.
Debt Recovery
Debt recovery is the process of pursuing payment of overdue invoices, ranging from informal chasing through to formal legal action.
Aged Debtor Report
An aged debtor report (aged receivables report) categorises outstanding invoices by how long they have been overdue, helping businesses prioritise collections.
Bad Debt
A bad debt is an amount owed to a business that is considered uncollectable and is written off as a loss in the accounts.
Put This Into Practice
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