How Much Interest Can I Charge on a Late Invoice? The Complete UK Guide

If you run a business in the UK, you have a legal right to charge interest on invoices that aren't paid on time. But how much interest can you actually charge on a late invoice? The answer depends on UK law, your contract terms, and the current Bank of England base rate. As of 2026, the statutory interest rate on late commercial invoices is 12.50% — but you may be able to charge more, and you absolutely should understand when and how to do it.

Unpaid invoices drain cash flow, disrupt planning, and can force small businesses into difficult financial positions. In this guide, we'll walk through your rights under the Late Payment of Commercial Debts (Interest) Act 1998, how to calculate interest correctly, and how to protect your business from payment delays.

Your Legal Right to Charge Interest on Late Invoices

The Late Payment of Commercial Debts (Interest) Act 1998 is the foundation of your right to charge interest. This law applies to business-to-business (B2B) transactions in the UK — meaning when you supply goods or services to another business, you have a statutory right to charge interest if they don't pay on time.

This right exists automatically, even if your invoice or contract doesn't mention it. You don't need special permission, and your customer can't waive it away with small print (unless their contract is genuinely negotiated on equal terms and they're a large company).

Who Does This Apply To?

• Freelancers and sole traders supplying services to other businesses
• Small businesses invoicing other companies
• Contractors working on B2B projects
• Service providers in any sector (IT, marketing, design, construction, etc.)

The Act does not automatically apply to consumer transactions — if you're invoicing an individual for personal use, the rules are different. But for any B2B work, you're covered.

The 2026 Statutory Interest Rate: What's the Current Percentage?

The statutory rate of interest on late invoices consists of two components:

Statutory Interest Rate = Bank of England Base Rate + 8%

In 2026, the Bank of England base rate is 4.50%. This means the statutory interest rate on late invoices is currently 12.50%.

This rate is fixed and you can charge this amount on a late invoice automatically. If your contract specifies a different rate (whether higher or lower), your contract terms apply — but they must be substantial fairness if your customer is a large company. For smaller businesses and most standard transactions, you can apply the statutory rate without question.

When Does the Statutory Rate Change?

The statutory rate changes whenever the Bank of England adjusts the base rate. The most recent change was in 2023-2024 as interest rates rose. Keep an eye on Bank of England announcements if you're invoicing regularly — but for now, 12.50% is the standard you should work from.

How to Calculate Interest on a Late Invoice

Let's say you've issued an invoice for £5,000. Your standard payment terms are Net 30 (payment due within 30 days). Your customer doesn't pay. How much interest can you charge?

Step 1: Identify the Due Date

The due date is when payment was supposed to arrive. If you didn't specify terms, the statutory "reasonable time" is generally considered 30 days. Count from the date of invoice.

Step 2: Count the Days Late

Let's say the invoice was due on 15 February, but payment arrived on 30 March. That's 43 days late.

Step 3: Apply the Formula

Interest = Invoice Amount × Interest Rate (12.50%) × (Days Late ÷ 365)

Using our example:

• Invoice: £5,000
• Interest rate: 12.50% (or 0.125)
• Days late: 43
• Interest = £5,000 × 0.125 × (43 ÷ 365) = £73.97

You can charge the customer £73.97 in interest, plus statutory compensation for recovery costs (more on that below).

Compensation for Recovery Costs

Beyond interest, the Late Payment of Commercial Debts (Interest) Act also entitles you to compensation for the cost of recovery. This is a fixed charge that covers the administrative burden of chasing payment.

Fixed Compensation Amounts (2026)

• Up to £999.99: £40 fixed compensation
• £1,000 to £9,999.99: £70 fixed compensation
• £10,000 or more: £100 fixed compensation

In our £5,000 example, you could charge £70 in fixed compensation in addition to the £73.97 interest. Total recovery: £143.97 on top of the invoice value.

Can You Charge More Than the Statutory Rate?

Yes — but with important limits. You can include a higher rate in your contract (e.g., 15%, 18%, or even 24%). However:

• The rate must not be "grossly unreasonable" — this is the legal test
• For large companies, your contract terms are more protected; for small businesses, courts will scrutinise very high rates
• Your contract must be clearly written and agreed in advance
• The statutory minimum (12.50% in 2026) always applies if no contract rate is specified

For most small business invoicing, the statutory rate of 12.50% is reasonable and sufficient. Going much higher creates friction with customers and may be unenforceable if disputed.

When Should You Start Charging Interest?

Interest accrues from the day after the due date. So if payment was due on 15 February, interest starts accruing on 16 February.

Best Practices for Charging Interest

1. State your terms clearly on every invoice. Include: "Payment due: [date]" and "Interest will be charged at 12.50% per annum on overdue invoices in accordance with the Late Payment of Commercial Debts (Interest) Act 1998."
2. Send a payment reminder before charging interest. Most customers appreciate a friendly reminder; many late payments are simply oversights. Give them 5-7 days to pay after the due date.
3. Send a formal demand with interest calculation. If they still don't pay, send a letter or email stating the total now due, including interest and compensation. This shows you're serious.
4. Calculate interest accurately. Customers are more likely to pay if they see you've done the maths correctly. Mistakes undermine your credibility.
5. Consider escalation timelines. After 30 days late, consider involving a debt recovery firm. After 60 days, think about small claims court. Interest on interest can compound — but so can your frustration.

Real Example: How Much Interest on a £10,000 Invoice?

Scenario: You invoice a client for £10,000. Payment terms are Net 30. The invoice is due 30 April. Payment arrives 60 days late, on 29 June.

Interest calculation:
£10,000 × 12.50% × (60 ÷ 365) = £205.48
Fixed compensation: £100 (invoice over £10,000)
Total additional charges: £305.48

Your client now owes you £10,305.48. That's meaningful money — and it's entirely legal under UK law.

Common Mistakes to Avoid

Mistake 1: Not Stating Terms on Your Invoice

If you don't clearly state your payment terms, the customer can argue the "reasonable time" is longer than 30 days. Always include "Payment due: [specific date]" on every invoice.

Mistake 2: Forgetting to Mention Interest Rights

While your right to charge interest exists by law, stating it on your invoice makes customers aware and less likely to test you. A simple line: "Interest at 12.50% per annum will be charged on overdue invoices" sets expectations.

Mistake 3: Calculating Interest Incorrectly

Always use the formula: Amount × Rate × (Days ÷ 365). Don't round to interest daily or monthly unless you've calculated it correctly. Errors give customers grounds to dispute.

Mistake 4: Charging Interest Without Giving Notice

Good practice: send a reminder after 7-10 days, formal notice after 30 days, charge interest on statement after 45-60 days. Don't ambush a customer with back-calculated interest on an invoice they thought was settled.

Mistake 5: Not Following Up

Many small business owners charge interest in theory but never actually pursue it. This signals to customers that you won't enforce your terms. If you state interest in writing, follow through — even if you have to escalate.

What If Your Customer Disputes the Interest?

A customer might argue: "That's too much." "We agreed to payment in 60 days." "The market rate is lower."

Here's your defence:

• The statutory rate (currently 12.50%) is set by law. You don't need their agreement.
• If your contract says something different, that applies instead. But it must be clearly documented and signed.
• Large companies can't evade the Act with unfair contract terms. The law prevents them from writing interest away entirely.
• Small businesses must show you've charged a "substantial fairness" rate. 12.50% is well within this — you're not charging 30% or 50%.

If a dispute escalates to court, a judge will apply the statutory rate unless you both agreed to something explicitly different. This is your legal right.

How to Prevent Late Payments in the First Place

Of course, the best interest is interest you don't have to chase. Consider these preventative measures:

• Shorten payment terms where possible. "Net 14" or "Net 21" instead of Net 30.
• Invoice immediately upon completion. Don't wait a week to send invoices.
• Require a deposit upfront for new or high-value clients.
• Use invoicing software that sends payment reminders automatically. Many tools can chase payment without you lifting a finger.
• Clear credit check before extending terms. Know who you're dealing with.
• Build a reputation as someone who enforces payment terms. Word travels; customers who know you chase interest are more likely to pay on time.

The Bottom Line: Your Right and Your Responsibility

You have a legal right to charge interest on late invoices in the UK. As of 2026, the statutory rate is 12.50% (8% plus the current 4.50% Bank of England base rate), plus fixed compensation. This applies automatically to B2B transactions under the Late Payment of Commercial Debts (Interest) Act 1998.

But having the right isn't the same as using it effectively. The best approach is clear terms, proactive reminders, and a reputation for enforcement. Most customers will pay on time if you make expectations clear — and those who don't should pay the price, literally.

Don't leave money on the table. Every day a customer doesn't pay is a day your cash flow suffers. Interest charges align their incentive with yours: get paid on time.