How Much Interest Can You Charge on Late Commercial Payments?

How Much Interest Can You Charge on Late Commercial Payments?

Late payments continue to be a major challenge for businesses across the UK, where many small and medium-sized businesses rely on steady cashflow to operate effectively.

What many companies don’t realise is that when another business fails to pay on time, you are legally entitled to charge interest and compensation. Below, Woodside Debt Recovery breaks down exactly how late-payment interest works and how to calculate what you are owed.

The Quick Answer: 8% + Bank of England Base Rate

Under the Late Payment of Commercial Debts (Interest) Act, businesses can charge:

8% above the Bank of England base rate

This applies when a commercial customer fails to pay within agreed terms.

You can also add a fixed compensation fee, depending on the invoice amount.

Understanding Contractual vs Statutory Interest

Contractual Interest

If your terms and conditions specify an interest rate for overdue invoices, this becomes your contractual interest rate.
It must be:

• Fair and reasonable
• Clearly stated
• Not excessive or punitive

If you have included a fair rate in your contract, you normally use that instead of the statutory rate.

Statutory Interest

If your contract does not specify an interest rate, you can apply statutory interest:

8% + the Bank of England base rate

This is the legal fallback designed to protect UK businesses against late payments.

How to Calculate Statutory Interest

You will need:

1. Amount owed
2. Bank of England base rate (check current rate online)
3. Number of days overdue

For legal claims, you must use the rate in force on 1 January or 1 July.

Example Calculation

• Debt: £1,000
• Base rate (20/11/2025): 4%
• Statutory interest: 12% (8% + 4%)

Annual interest:
£1,000 × 13% = £120

Daily interest:
£130 ÷ 365 ≈ 32p per day

Note: Statutory interest is simple, not compound.

Is This Legal? Yes - Under UK Law

The right to charge interest and compensation is set out in the:

Late Payment of Commercial Debts (Interest) Act 1998

It applies to:

✔ Supply of goods
✔ Supply of services
✔ Goods hire agreements
✔ All UK businesses and public sector bodies

It does not apply to:

✘ Consumer transactions (B2C)
✘ Certain international agreements

Compensation You Can Charge on Late Payments

In addition to interest, businesses can add a fixed compensation fee:

If your genuine recovery costs exceed this amount, you may claim your reasonable additional costs as well.

When Can You Start Charging Interest?

Statutory interest begins from the later of these:

• 30 days after goods/services are supplied
• 30 days after the invoice is received
• The agreed payment date

Compensation can be added as soon as the invoice becomes overdue, even by one day.

A Business Owes You Money - What Should You Do?

Dealing with overdue invoices can be stressful and time-consuming. The most effective approach is to use a professional debt recovery service.

Why Businesses Choose Woodside Debt Recovery

Woodside Debt Recovery is based in the North West and supports businesses across Carlisle, Cumbria, and the UK. We provide:

• Fast, compliant commercial debt recovery
• Accurate calculation of interest and compensation
• Professional communication with your debtor
• Clear updates at each stage
• A cost-effective service with strong results

Our goal is simple: to recover what you’re owed, quickly and professionally.

Get Expert Help Recovering Late Payments

If your business is struggling with late-paying customers, Woodside Debt Recovery can help you recover your overdue invoices - including interest and compensation.

Contact Woodside Debt Recovery

Call us today: 01228 272707

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