Late Payment Act: What are you entitled to claim?

The Late Payment of Commercial Debts

The Late Payment of Commercial Debts Act was introduced by the UK Government in 1998 to give businesses a statutory right to claim interest from other businesses for late commercial payment.

In 2002 changes were made to the legislation so that all businesses could also claim reasonable costs for commercial debt recovery.

The latest amendments to The Late Payment of Commercial Debts Act came in 2013 offering more protection to businesses against late payment.

The Late Payment of Commercial Debts Act

Regulations 2013

The 2013 changes to the legislation mean that if no payment date has been agreed then a payment is legally deemed as late 30 days after:

  • The customer receives the invoice


  • The goods or service is provided, if this is later than when the invoice is received by the customer.


How is late commercial payment interest calculated?

The statutory interest that you can charge another business for late commercial payment is 8% plus the Bank of England base rate for business to business transactions which currently sits at 5.25%. Therefore, the late payment interest you can charge would be 13.25%.

However, it is important to note that you cannot claim statutory interest if there is a different interest rate in the contract agreed between you and your customer.

Here is an example, a £5,000 invoice overdue by 50 days:

If your business is owed £5,000 then the annual statutory interest would be £662.50.

Divide £662.50 by 365 to get the daily interest, which would be £1.81506849.

£1.81506849 daily interest multiplied by 50 days gives £90.75.

£90.75 would be the statutory interest that could be added to a £5,000 invoice overdue by 50 days.


Claiming compensation and reasonable costs

The Late Payment of Commercial Debts Act means businesses can also claim compensation as well as interest on late commercial payment.

The compensation that can be claimed is broken down as follows:

  • £40.00 on debts under £1,000.00
  • £70.00 on debts under £10,000.00
  • £100.00 on debts £10,000.00 and over

As each individual invoice is classed as a debt the compensation can be claimed on each invoice.

Additional reasonable costs can be claimed if the costs of debt recovery are not met by the compensation.

Our Collect-it partner, Darcey Quigley are able to collection these additional fees 94% of the time! Meaning you may receive free debt recovery.

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