How the Late Payment of Commercial Debts Act actually works (and how to use it)

What the Act says

The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business the statutory right to charge interest on overdue invoices from other businesses. This is B2B only — it does not apply to invoices sent to consumers or private individuals.

The right is automatic. You do not need to include it in your terms and conditions, mention it in your contract, or agree it in advance. If another business owes you money and they pay late, you are entitled to charge interest from the day after the agreed payment date.

The Act applies across England, Wales, Scotland, and Northern Ireland. It covers contracts for the supply of goods or services where both parties are acting in the course of a business.

How to calculate statutory interest

The formula is straightforward:

The 8% is fixed by the Act. The Bank of England base rate changes periodically — as of early 2026, it is 3.75%. That gives a total statutory interest rate of 11.75% per annum, applied daily.

Interest accrues daily from the day after the agreed payment date and continues until the debt is paid in full.

Compensation on top

In addition to interest, the Act entitles you to claim a fixed sum as compensation for the cost of recovering the debt. The amount depends on the size of the invoice:

This compensation is per invoice, not per payment. You can claim it once for each overdue invoice regardless of how long the debt remains outstanding.

Should you actually charge it?

Here’s the honest answer: most small businesses never claim statutory interest. They worry about damaging the relationship, losing the client, or looking aggressive. That’s understandable.

But here’s what they miss: the real power is in mentioning it.

A polite reference to the Late Payment Act in a follow-up email — with the actual interest figure calculated and included — is often enough to prompt payment. The client sees a real number attached to their delay. They understand there are consequences. Most pay quickly after that.

You do not need to actually add the charge to your invoice to get the benefit. The awareness alone changes the dynamic. It shifts the conversation from “please pay me” to “here is what this delay is costing.”

How Owed handles this for you

Owed has a statutory interest toggle in your settings. Turn it on, and stages 3 and 4 of your chase sequence will automatically include a calculated interest figure and a reference to the Act.

Your client sees the number. You never had to calculate it. The interest accrues daily and the figure updates automatically based on the invoice amount and how many days overdue it is.

Compensation bands are included too — £40, £70, or £100 depending on the invoice size. Everything is formatted and worded professionally. Your client gets the message without you having to be the one to deliver it.