What is Statutory Late Payment Interest?
Eligible UK commercial debts may qualify for statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998.
Under the Late Payment of Commercial Debts (Interest) Act 1998, eligible late payments between businesses, or from the public sector, may qualify for statutory interest. A contractual remedy for late payment can affect whether the statutory scheme applies, so check the agreement before claiming.
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, applicable reference rate 3.75%, 45 days late Daily rate = (8% + 3.75%) ÷ 365 = 0.03219% Interest = £5,000 × 0.0003219 × 45 = £72.43
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 - It may apply where the contract is silent, but a contractual late-payment remedy can displace the statutory scheme - Use the reference rate for the six-month period in which the debt became late, not necessarily today's Bank Rate - You can choose to charge interest or not - it's a right, not an obligation
Examples
A consultant checks the contract and applicable six-month reference rate before calculating interest on an eligible B2B invoice
A builder confirms a £3,000 B2B debt is eligible before adding £70 fixed compensation and interest
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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