How to Charge Interest on a Late Invoice in the UK

When another business pays your invoice late, you have a legal right to charge interest and claim compensation — even if your contract never mentioned it. Almost nobody does, because almost nobody works out the figure. Here's exactly how, with a worked example and a letter you can adapt.

The legal basis

The Late Payment of Commercial Debts (Interest) Act 1998 gives UK businesses an automatic right to charge interest on overdue business-to-business invoices. It applies whether or not your contract mentions interest. It does not apply to consumers — only to business customers.

Two things you can claim:

Statutory interest — 8% per year above the Bank of England base rate, calculated daily on the gross overdue amount (VAT included), as simple interest.

Fixed compensation — a flat sum per overdue invoice, on top of the interest, based on the size of the debt:

• Debt up to £999.99 → £40
• Debt £1,000 to £9,999.99 → £70
• Debt £10,000 or more → £100

Working out the figure

The daily interest formula:

Daily interest = debt × (base rate + 8%) ÷ 365

Then multiply by the number of days overdue.

Worked example. You invoiced a business customer £5,000 for completed work, due 30 days after the invoice. They pay 30 days late. With the Bank of England base rate at 3.75%, the statutory rate is 11.75%.

• Annual interest: £5,000 × 11.75% = £587.50
• Daily interest: £587.50 ÷ 365 = £1.61
• Interest for 30 days: £1.61 × 30 = £48.29
• Fixed compensation (debt £1,000–£9,999.99): £70
• Total to claim: £5,000 + £48.29 + £70 = £5,118.29

A note on the base rate: you use the rate that was in force on the day the debt became overdue, and it's fixed for a six-month period rather than moving day to day. Always check the current Bank of England base rate before you calculate.

A letter template

Subject: Overdue invoice [number] — statutory interest and compensation

Dear [name],

Invoice [number] for £[amount], due on [date], remains unpaid and is now [X] days overdue.

Under the Late Payment of Commercial Debts (Interest) Act 1998, I am entitled to charge statutory interest at 8% above the Bank of England base rate, together with fixed compensation for recovery costs.

As of today, the amount outstanding is:

• Original invoice: £[amount]
• Statutory interest ([X] days at [rate]%): £[interest]
• Fixed compensation: £[40/70/100]
• Total now due: £[total]

I would be grateful for payment within [7] days. Interest continues to accrue daily until the debt is settled.

Kind regards, [Your name]

Should you always charge it?

Many suppliers charge statutory interest selectively — waiving it for a good customer as a gesture, applying it firmly to a persistent late payer. The legal right exists on every qualifying invoice; whether you exercise it is a commercial decision. What matters is knowing the number, so the choice is yours to make rather than one you never realised you had.

Where Execore fits

Execore keeps the statutory interest running total on every overdue business invoice automatically, so the figure is always ready — to quote in a chase, or to waive on purpose. You never have to sit down and calculate it, which is the reason most businesses never claim what they're owed.