Invoice Overdue? Here's What Your Rights Are Under UK Law

If you're a freelancer, sole trader, or small business owner in the UK, you've likely experienced the frustration of waiting for payment on an invoice overdue by weeks or months. The good news is you have legal rights. When a UK business customer fails to pay on time, you're entitled to statutory interest, compensation, and formal debt recovery options under the Late Payment of Commercial Debts (Interest) Act 1998. But understanding invoice overdue rights in the UK is crucial before you take action—and knowing what you're legally entitled to can mean the difference between recovering your money or losing it entirely.

This guide covers your legal position when facing late payment, how much interest you can claim, and practical steps to recover what's owed.

Your Basic Rights Under the Late Payment Act 1998

When a B2B invoice becomes overdue in the UK, the Late Payment of Commercial Debts (Interest) Act 1998 automatically gives you the right to charge statutory interest and a fixed compensation fee. You don't need to include this in your contract—it's your right by law. This applies to payments between UK businesses, and also to payment from UK businesses to overseas suppliers.

The key principle is simple: creditors should not be penalised for pursuing debtors for payment. If a business owes you money and doesn't pay within the agreed term, you can legally claim:

• Statutory interest on the outstanding amount
• Fixed compensation for the cost of recovery (£40–£100+ depending on debt size)
• Reasonable costs of pursuing the debt (solicitors' letters, court fees, etc.)

The statutory interest rate for 2026 is 8% per annum plus the Bank of England base rate. With the current base rate at 4.50%, that brings the total to 12.50% per annum. This is calculated daily on the outstanding amount and compounds, so the longer a debt remains unpaid, the more interest accrues.

When Does the Late Payment Act Apply?

Not every unpaid invoice qualifies. The Late Payment Act applies specifically to commercial debts—money owed for goods or services supplied between businesses. It covers:

• Invoices for freelance work or consultancy
• Supply of goods to other businesses
• Services provided to sole traders or limited companies
• Work done where no specific payment term was agreed (in which case 30 days is implied)

The Act does not apply to consumer debts (money owed by individuals for personal use), payments to public authorities, or where a specific contract explicitly removes your right to claim interest—though such clauses are often unenforceable if they're considered unfair.

How to Calculate Statutory Interest on an Overdue Invoice

Let's walk through a practical example. Suppose you've issued a £5,000 invoice with a 30-day payment term. It's now 60 days overdue—30 days past due. Here's what you can claim:

Statutory interest calculation:
Outstanding amount: £5,000
Interest rate: 12.50% per annum
Days overdue: 30 days
Interest owed: £5,000 × 12.50% × (30 ÷ 365) = £51.37

On a larger debt or longer payment period, this adds up quickly. If that same invoice were 120 days overdue, the interest would be approximately £205.48. The statutory interest rate applies from the day after the payment deadline until the debt is settled, and it compounds daily.

Additionally, you can claim a fixed compensation fee for the cost of recovery:

• For debts under £1,000: £40
• For debts £1,000–£9,999: £70
• For debts £10,000+: £100

So in our example, you could claim £5,000 + £51.37 interest + £70 compensation = £5,121.37.

Steps to Recover an Overdue Invoice

Once you understand your rights, here's the practical process for recovering overdue invoices:

Step 1: Send a Payment Reminder (Day 1–7 after due date)

Start politely. Send a reminder email or letter referencing the original invoice, the amount due, and the original payment terms. Many invoices are unpaid due to admin delays or missing the payment run—not malice.

Step 2: Formal Demand Letter (Day 8–14 after due date)

If the reminder doesn't work, escalate. Send a formal demand letter stating the amount owing, the amount of statutory interest and compensation you're claiming, and a deadline for payment (typically 7–14 days). This should reference the Late Payment Act 1998. A solicitor's letter carries more weight, though many businesses will respond to a well-written formal demand from you directly.

Step 3: Debt Collection Agency (Day 15+)

If the business still hasn't paid, you can pass the debt to a collection agency. They'll pursue recovery on your behalf (typically taking 15–20% commission). This formalises the process and often prompts payment from businesses avoiding "official" contact.

Step 4: Small Claims Court (Day 30+)

For debts under £10,000, the Small Claims Court is your route. Court fees range from £30–£355 depending on the claim amount, and the process typically takes 4–6 months. If you win, the court orders the debtor to pay plus a contribution toward your legal costs. The advantage: the court order makes recovery more likely, and many businesses pay immediately when served with court papers.

Step 5: Enforcement (After judgment)

Once you have a court judgment, you can use enforcement methods including attachment of earnings, charging orders, or bailiff action—though these are expensive and reserved for larger debts or persistent non-payers.

Can You Challenge a Claim for Statutory Interest?

Yes—debtors can argue that a statutory interest claim is "unfair" under the Unfair Contract Terms Act 1977. However, this is rarely successful unless:

• The debtor was a small business and you were the large corporation (the law favors protecting small suppliers)
• The debt was caused by a genuine dispute over the work or goods supplied
• Circumstances changed substantially after the contract was agreed

Generally, statutory interest claims under the Late Payment Act 1998 are enforceable and debtors have little grounds to challenge them.

Protect Yourself: Prevention Is Easier Than Recovery

The best strategy is preventing overdue invoices in the first place:

• Clear payment terms: State them explicitly on every invoice—"Payment due within 14 days" is clearer than "net 30"
• Early payment incentives: A 2–3% discount for payment within 7 days encourages faster payment
• Payment method: Request bank transfer, not cheque—it's faster and you have proof
• Regular invoicing: Send invoices the day work is completed, not weeks later
• Pre-project agreements: For larger projects, agree payment milestones upfront and get sign-off
• Know your customer: Before taking on significant work, research the company's payment history and financial health

What About Private Individuals Who Owe You Money?

The Late Payment Act 1998 does not apply to individuals—only B2B debts. If a person owes you money (private debt), you cannot claim statutory interest under this Act. Your options are limited to Small Claims Court for the original debt amount, or passing it to a debt collector. This is why it's important to clarify whether you're supplying a business or an individual before work begins.

Your Rights Summary

When an invoice is overdue in the UK, you have legal rights under the Late Payment of Commercial Debts (Interest) Act 1998. You can claim:

• Statutory interest at 12.50% per annum (8% + current Bank of England base rate)
• Fixed compensation fees (£40–£100)
• Reasonable recovery costs

These rights exist automatically—you don't need to mention them in your contract, though it's wise to flag them in writing to debtors. Act quickly: send a formal demand within 2–3 weeks of the due date, and escalate to Small Claims if necessary after 30 days.

Understanding invoice overdue rights empowers you to recover what you're owed without backing down. UK law is on your side—use it.