What Interest Can You Charge on Overdue Invoices in the UK?

Late payments can cripple your cash flow — but did you know UK law allows you to charge interest and claim compensation when another business pays late?

Whether you're a small business owner, freelancer, or finance director, understanding your rights around overdue invoices can help you get paid faster and discourage repeat offenders.

Your Legal Right to Charge Interest

Under the Late Payment of Commercial Debts (Interest) Act 1998, UK businesses are legally entitled to charge statutory interest on overdue invoices — even if your contract doesn't specifically mention it.

This law applies when:

• The debt is business-to-business (B2B)

• Goods or services have been provided

• Payment is late according to agreed or default terms

How Much Interest Can You Charge?

🔹 Statutory Interest Rate:

You can charge 8% above the Bank of England base rate.

For example:
If the base rate is 5.25%, you can charge 13.25% annual interest on overdue invoices.

🔹 When Can You Start Charging?

• If payment terms are stated in the contract (e.g. 30 days), interest begins the day after the due date.

• If not stated, the law assumes payment is due 30 days after:

  • Delivery of goods/services, or

  • Receiving the invoice — whichever is later.

Can You Charge a Fixed Late Payment Fee?

Yes — in addition to interest, you're also entitled to a fixed sum for each unpaid invoice:

These fees are per invoice, not per debtor.

Can You Add Recovery Costs Beyond the Fixed Fee?

If your actual debt recovery costs exceed the fixed fee, you can claim additional reasonable costs, but only if it’s clearly stated in your contract or if a court allows it.

Should You Include Interest Terms in Your Contracts?

Absolutely. While statutory rights apply by default, having clear terms in your contracts, quotes, or invoices helps avoid disputes. You can:

• State your own rate (as long as it's fair)

• Clarify when interest starts

• Mention late payment compensation

Tip: Add a clause like
"We reserve the right to charge interest on late payments at 8% above the Bank of England base rate, in accordance with the Late Payment of Commercial Debts Act."

What About Charging Interest to Consumers?

This law only applies to business-to-business (B2B) transactions. You can’t charge statutory interest to individual consumers under this legislation — you'd need a contract that explicitly allows it.

How to Calculate Interest on an Overdue Invoice

Here’s a simple formula:

Interest = (Debt × Interest Rate × Number of Days Late) ÷ 365

Example:

• £1,000 invoice

• 13.25% interest (with 5.25% base rate)

• 45 days overdue

£1,000 × 13.25% × 45 / 365 = approx. £16.34

You can also find free late payment calculators online to save time.

Should You Charge It?

That depends on your goals:

• Want to protect cash flow? Charging interest deters late payment.

• Want to maintain the relationship? You may choose to waive it but mention your legal right as a warning.

Even if you don’t enforce it every time, knowing the law puts you in control.

Final Thoughts

Charging interest on overdue invoices isn’t just allowed — it’s your legal right. It helps discourage poor payment habits and shows clients you’re serious about getting paid on time.

If you’re dealing with persistent late payers, consider:

• Updating your payment terms

• Including interest clauses in contracts

• Using professional debt recovery when necessary

Don’t let unpaid invoices drag your business down — take action, and know the law is on your side.