What you can legally charge when a business customer pays late in the UK: statutory interest, fixed £40, £70 or £100 fees, worked examples and how to enforce them.

Invoice and calendar line art framing headline

If another business pays you late, you can charge statutory interest of 8% plus the Bank of England base rate, and a fixed recovery fee of £40, £70 or £100 depending on the size of the invoice. Both come from the Late Payment of Commercial Debts (Interest) Act 1998. They apply to business customers, not homeowners. Below we cover how the numbers work, when an invoice counts as late, what you can add on top, and how to set things up so you rarely need to use any of it.

Pipelineapp
Keep Invoices and Jobs Organised
Pipeline brings invoicing, payments, leads and job management together in one platform for UK trades and service businesses.
Get in touch

TL;DR

  • Business-to-business invoices carry statutory interest of 8% plus the Bank of England base rate, unless your contract sets a substantial rate of its own.
  • You can also claim fixed compensation per late invoice: £40 (under £1,000), £70 (£1,000 to £9,999.99) or £100 (£10,000 or more).
  • With no agreed date, an invoice is generally late 30 days after the customer gets it or the work is done, whichever is later.
  • These rules do not cover consumers. For homeowners you rely on your own written terms, which must be fair.
  • Government has said it intends to tighten the law, but the rules above are the ones in force today.

Table of Contents

Are late payment fees legal in the UK?

Yes, when the customer is another business. Under the Late Payment of Commercial Debts (Interest) Act 1998, a qualifying business debt carries statutory interest and fixed recovery compensation. The Act applies to contracts for goods or services where both the supplier and the purchaser are acting in the course of business. It does not generally apply to consumer contracts.

So the answer depends on who you invoice:

  • A letting agent, a builder, a shop, a landlord with a business, a council: the Act applies.
  • A homeowner paying for a boiler repair: the Act does not apply. You can still put a late fee in your terms, but it has to be clear, agreed up front and reasonable.

Most trades work for a mix of both, so you need two sets of terms. We come back to that below.

When does an invoice become late?

This is where many people trip up. You can’t charge anything until the invoice is actually late.

If you agreed a payment date, statutory interest starts the day after it, subject to the limits in section 4 of the Act.

If you agreed nothing, GOV.UK says payment is generally late 30 days after the later of two things: the customer receiving the invoice, or the goods or service being delivered. The same page set out in GOV.UK’s guidance on payment obligations says you can set terms such as payment upfront or early-payment discounts.

If the terms are long, the Small Business Commissioner says private-sector businesses commonly agree terms of up to 60 days. Longer periods should only be agreed where both sides consent and the terms are fair. Under the Act, a period over 60 days between businesses only stands where it is not grossly unfair to the supplier. For public authorities, the relevant period is generally 30 days.

Timeline of UK invoice late-payment rules

If the customer disputes the invoice, the Small Business Commissioner says a genuinely disputed invoice should not normally attract interest or compensation until the dispute is resolved. That is one reason clear sign-off on finished work matters. We cover it further down.

How much interest can you charge?

Statutory interest is 8% a year on top of the Bank of England base rate. The base rate moves, so check the current figure before you calculate. GOV.UK explains the method:

  1. Multiply the unpaid amount by the annual rate.
  2. Divide by 365 to get the daily amount.
  3. Multiply by the number of days late.

GOV.UK’s own example is £1,000 at 8.5%. That gives £85 a year, about 23p a day, or £11.50 for 50 days.

A worked example for a trade invoice

Say you fit a kitchen for a small property company and invoice £2,400. They pay 30 days late. For illustration, assume the base rate is 4%, so the interest rate is 12%.

  • £2,400 × 12% = £288 a year
  • £288 ÷ 365 = about 79p a day
  • 30 days late = about £23.67 interest

Add the fixed fee for a £1,000 to £9,999.99 debt (£70) and you can claim roughly £93.67 in total. It is not life-changing money. The real value is that the customer sees a consequence, and that the clock is on your side if you end up chasing for months.

One catch: GOV.UK says you cannot claim statutory interest if your contract already sets a different rate of interest. If you write your own rate into your terms, it needs to be substantial, as explained in the next but one section.

Fixed fees you can claim on top

On top of interest, you can claim fixed compensation for each late payment. GOV.UK lists the amounts:

Size of the unpaid debt Fixed compensation
Up to £999.99 £40
£1,000 to £9,999.99 £70
£10,000 or more £100

The fee can be claimed once for each late payment. If a customer is late on three separate invoices, that is three claims.

You may also claim reasonable extra recovery costs each time you try to recover the debt, on top of the fixed sum. Think of a solicitor’s letter, not your own time spent sending reminders. Keep receipts.

Can you set your own late fee?

Yes, with a limit. The 1998 Act allows contractual terms dealing with late payment. But under Part II of the Act, a term that excludes or varies statutory interest is void unless the contractual remedy, or the overall remedy, is substantial. Whether it is substantial depends on compensation, deterrence and fairness in the circumstances.

In plain terms:

  • A contract term that is lower than the statutory remedy and does not really compensate or deter is at risk of being ignored. You then fall back on the statutory rate.
  • A term that is at least as good as the statutory position is less likely to be a problem.
  • Don’t invent a large flat penalty for small jobs. It is the sort of thing that gets challenged.

For most trades the simplest approach is to say nothing that contradicts the Act. State your payment terms clearly and mention that you will claim statutory interest and fixed compensation under the 1998 Act.

What about homeowners and other consumers?

The Act is a commercial regime. It defines “business” to include professions and public bodies, and it excludes consumer-credit agreements and employment or apprenticeship contracts. A private homeowner is outside it.

For domestic customers:

  • Put your payment terms on the quote and the invoice before work starts, not after.
  • If you add a late fee, state the amount or rate in advance and keep it modest.
  • Use staged payments or deposits for bigger jobs so you are never far out of pocket.
  • Keep a record that the customer saw and accepted the terms.

If you are unsure whether a particular fee would hold up, speak to a solicitor or a trade body that offers legal helplines before relying on it. Don’t copy a fee from a template without checking it fits your customers.

What to put on your quotes and invoices

The Act doesn’t force specific wording, but your paperwork should make late payment easy to prove. Put these on every business invoice:

  • The invoice date and the due date (a date, not just “30 days”).
  • The agreed payment terms, written on the quote and repeated on the invoice.
  • A line stating you will claim statutory interest and fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
  • Your bank details or a payment link, so there is no excuse about not knowing how to pay.
  • A clear description of the work, so there is nothing vague to dispute.

We’ve written separately about invoicing so it stays HMRC compliant, and how to handle VAT on progress invoices if you bill in stages.

Chasing a late invoice, step by step

You rarely need to jump to formal action. A calm, regular routine works better than a angry email on day 45.

  1. Day after the due date: send a polite reminder with the invoice attached and a payment link.
  2. A few days later: text or call. A short message is often what gets an invoice moving. Our guide to invoice reminders every three days shows a simple rhythm.
  3. One to two weeks late: send a formal letter or email stating the amount, the statutory interest so far and the fixed compensation you are claiming. Give a deadline, such as 7 days.
  4. Still unpaid: consider your next step. For some debts that means a letter before action; GOV.UK also identifies a statutory demand as a formal method of requesting payment of money owed.

If you want a plain-English walkthrough of what to do when a customer does not pay, that page covers the points where the Act applies to business customers. For large or contested sums, take advice from a solicitor or a debt recovery specialist rather than guess.

Stopping disputes before they start

Disputed invoices are the quiet cause of a lot of late payments. A customer who says the job wasn’t finished can park your invoice for weeks, and as the Small Business Commissioner notes, a genuine dispute usually pauses your right to interest.

The fix is boring and it works:

  • Agree the scope in writing before you start.
  • Get sign-off at the end of the job, ideally with photos.
  • Invoice the same day while the work is fresh.

Our job checklist guide shows how to build sign-off into each job. And the nine fixes for getting paid faster is worth a read if cash flow is tight.

Is the law changing?

Possibly, though nothing here has changed yet. The March 2026 government response says it intends to legislate, subject to Parliamentary time, for:

  • mandatory statutory interest
  • a 60-day maximum payment term, with exemptions
  • deadlines for raising invoice disputes
  • stronger powers and penalties for the Small Business Commissioner
  • restrictions on construction retentions

Until that becomes law, the current regime stands. The late payment common framework, updated on 19 March 2026, describes it as operating UK-wide, with 60-day business payment periods (or longer by agreement if not grossly unfair), 30-day public-body periods, interest at the Bank of England reference rate plus 8 percentage points and fixed recovery charges of £40, £70 or £100.

Our view: fees help, but speed matters more

We build software for UK trades, and we see the same pattern. Late fees are a safety net. The jobs that get paid on time are the ones where the invoice went out the same day, the customer could pay from their phone, and a reminder landed before anyone forgot.

So our advice is to spend your energy on the front end:

  • Quote with clear terms every time, using a reusable template so you never forget the payment line.
  • Invoice from the van, not on Sunday night.
  • Let reminders run automatically instead of relying on your memory.
  • Keep one customer record with the quote, the job notes, the sign-off and the invoice, so if you do chase, everything is in one place.

The fee is worth claiming when someone is persistently late. But most of the time the best money you’ll make from this topic is the money you never have to chase. Don’t bury a good customer in charges over a few days; use the fee as leverage on the ones who treat your invoices as optional.

— Chris

How Pipeline helps you get paid on time

Pipeline keeps leads, quotes, jobs, invoices and payments in one place, so an unpaid invoice never gets lost in a spreadsheet or a group chat. You can send online invoices from the mobile app, take payment through Stripe, sync with Xero or QuickBooks and send automated email and SMS reminders.

Pricing is flat monthly with no per-user fees: Solo is £12 per month, Starter is £38 per month and Professional is £63 per month. Enterprise and text messages have no published price. See the Pipeline plans to pick the one that fits your team. You can also use our free calculators for UK trades for CIS, VAT and pricing.

FAQ

Can I charge a late payment fee to a homeowner?

The statutory scheme does not cover consumers, so there is no automatic right to the 8% interest or the £40, £70 or £100 fee. You can include a late fee in your terms if you state it clearly before the work begins and keep it reasonable. If the amount is large or the customer pushes back, take legal advice before relying on it.

How much can I charge on a £1,000 invoice?

The fixed fee for a debt of £1,000 to £9,999.99 is £70, while a debt under £1,000 attracts £40. Interest is added on top at 8% plus the base rate. GOV.UK’s example of £1,000 at 8.5% gives about 23p a day, so £11.50 for 50 days.

When can I start charging interest?

If you agreed a due date, interest starts the day after it. If you agreed nothing, the invoice is generally late 30 days after the customer receives it or the work is delivered, whichever is later. A genuine dispute over the invoice can pause your claim until it is resolved.

Can I claim costs on top of the fixed fee?

Yes, you can claim reasonable recovery costs each time you try to recover the debt, in addition to the fixed statutory sum. Keep records and receipts. Time spent writing your own reminders is not what this is aimed at.

Sources

Recommended