The Late Payment Act, line by line

The basics

The Late Payment of Commercial Debts (Interest) Act 1998 gives every business an automatic right to charge interest and fixed compensation when another business pays an invoice late. You don't need to have mentioned it in your terms: the right comes from the law. (If your contract sets its own “substantial remedy” for late payment, that can apply instead.)

Late payment is a big problem: around £26bn is owed to small businesses in late payments at any one time, and 14,000 businesses close each year because of it (Department for Business and Trade, 2025). Yet most small firms never claim what the Act allows.

Statutory interest

Statutory interest is 8% a year above the reference rate, charged as simple interest for each day the invoice is late:

So a £4,800 invoice that's 21 days late in 2026 attracts £4,800 × 11.75% ÷ 365 × 21 = £32.45, building at about £1.55 a day. Use our late payment calculator for your own figures.

Reference rates since 2018

The reference rate is the Bank of England base rate (Bank Rate) in force on a fixed date, depending on when the debt became overdue, and it then stays the same for the life of that debt:

• overdue between 1 January and 30 June → base rate on the previous 31 December;
• overdue between 1 July and 31 December → base rate on 30 June.

Source: Bank of England Bank Rate history, checked 7 October 2026.

Fixed compensation

On top of interest, you can claim a fixed sum for the cost of recovering each late invoice:

You can claim it once per invoice. If your reasonable recovery costs were higher than the fixed sum, you can claim the difference too.

When is a payment “late”?

• If you agreed a payment date or terms, it's late the day after that date.
• If nothing was agreed, it's late after 30 days from the later of your customer receiving the invoice or receiving the goods or services.
• Between businesses, agreed terms of more than 60 days are only valid if they were expressly agreed and aren't grossly unfair to you. Public authorities must pay within 30 days.

Who it applies to

Both sides must be acting in the course of business: sole traders, partnerships, limited companies, LLPs and public bodies all count. It doesn't apply to sales to private individuals (consumers). You can still chase a consumer for what they owe, just without statutory interest or compensation.

How to claim it

1. Tell your customer, in writing, that you're claiming statutory interest and compensation, and how much. Many firms send a fresh invoice or statement showing the amounts.
2. Keep reminding them, politely and in writing. Keep copies.
3. If they still don't pay, send a formal Letter Before Action giving a final deadline (usually 14 days for a business, 30 days for an individual under the Pre-Action Protocol for Debt Claims).
4. If the deadline passes, you can start a claim in the county court: for most debts, online through Money Claim Online. The court fee is based on the amount you claim, including interest.

Duly Paid does steps 1 to 3 for you and builds the pack for step 4. See how →

What's changing: the Small Business Protections Bill

In March 2026 the government set out the biggest crackdown on late payment in over 25 years, and the Small Business Protections Bill (formerly the Commercial Payments Bill) is now going through Parliament. As proposed, it would:

• make statutory interest mandatory on late commercial payments;
• cap payment terms at 60 days, with longer terms treated as 30;
• give the Small Business Commissioner new powers, including fines for persistent late payers.

Most measures are expected to take effect from 2027, once the Bill becomes law. We'll update this guide (and Duly Paid) as it does.