A client owes you money. The invoice is overdue. You've done the work, delivered the result, and now you're chasing for payment while they go quiet. Sound familiar?

If you're a freelancer, contractor, or small business owner in the UK, late payment isn't just annoying — it threatens your survival. 62% of UK SMEs experience late payment, and it's the number one cause of cash flow problems that kill businesses.

Here's the good news: UK law is firmly on your side. You can charge interest, claim compensation, and recover what you're owed — and you don't need a solicitor to do it.

Your Legal Rights: The Late Payment Act

The Late Payment of Commercial Debts (Interest) Act 1998 gives every UK business the automatic right to charge interest and compensation on late business-to-business (B2B) invoices. You do NOT need to have included these terms in your contract or invoice — they apply by default.

Statutory Interest Rate (2026)

You can charge interest at 8% above the Bank of England base rate. As of March 2026, the base rate is 3.75%, so the statutory interest rate is 11.75% per annum. Interest accrues daily from the day after the payment due date.

Formula: Invoice amount x 11.75% ÷ 365 x days overdue

For example, a £2,500 invoice that's 30 days late accrues £24.14 in statutory interest.

Fixed Compensation

On top of interest, you're entitled to fixed compensation:

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

The 4-Step Escalation Process

Most late payments aren't malicious — they're disorganised or deliberate cash flow management by the debtor. A structured escalation process recovers the majority of debts without court action. Here's the proven sequence:

Step 1: Friendly Reminder (Day 1 overdue)

Send a polite reminder. Assume it's an oversight. Keep the tone warm — this preserves the relationship and often resolves the issue immediately.

Step 2: Firm Follow-Up (Day 7-14)

If the friendly reminder gets no response, escalate. Mention the Late Payment of Commercial Debts Act by name. State that you're entitled to charge interest and compensation. Give a clear deadline (7 days).

Step 3: Final Warning (Day 14-21)

State clearly that formal recovery proceedings will begin if payment isn't received. Include the full breakdown: original amount + interest + compensation = total owed. The specificity shows you're serious and informed.

Step 4: Letter Before Action (Day 21-30)

A Letter Before Action (LBA) is a formal legal document required under the Pre-Action Protocol for Debt Claims before you can file a county court claim. It gives the debtor 30 days to pay, propose a payment plan, or dispute the debt in writing.

This is the most powerful step in the process. The vast majority of debts are paid after receiving a Letter Before Action, because it signals you're prepared to go to court — and the debtor knows a County Court Judgment (CCJ) stays on their credit file for 6 years.

What if They Still Don't Pay?

If the LBA gets no response after 30 days, you can file a county court claim:

• Money Claim Online: For debts under £100,000, file at moneyclaim.gov.uk
• Court fees: £35 to £455 depending on the amount (added to the debt if you win)
• Small Claims Track: Debts under £10,000 are straightforward — no solicitor needed
• CCJ: If they don't respond to the court claim within 14 days, you get a default judgment

Calculate What You're Owed

Use our free Late Payment Chaser to instantly calculate the statutory interest and compensation on your overdue invoice. You'll also get a free reminder email template — and you can unlock the full escalation pack including a Letter Before Action for £9.99.

Tips for Preventing Late Payment

• Set clear payment terms upfront (14 or 30 days) and include them on every invoice
• Invoice immediately when the work is delivered — don't wait
• For new clients or large projects, take a deposit (30-50% upfront)
• Use accounting software that sends automatic payment reminders
• Include the Late Payment Act clause on your invoices: "Under the Late Payment of Commercial Debts (Interest) Act 1998, we reserve the right to charge statutory interest and compensation on overdue invoices"

Don't let late-paying clients threaten your business. Calculate what you're owed now and start recovering your money today.