Statutory Interest on Late Invoices in the UK: Your Legal Right to Claim

If you're owed money by a customer, contractor, or supplier who's paying late, you have a legal right to statutory interest on late invoices under UK law. As a freelancer, sole trader, or small business owner, understanding how to claim statutory interest late invoice UK payments can transform unpaid invoices from lost revenue into enforced debt collection with interest.

This isn't about asking nicely. The Late Payment of Commercial Debts (Interest) Act 1998 gives you the statutory right to claim interest automatically, even if your invoice doesn't mention it. The current statutory interest rate for 2026 is 12.5% per annum (8% plus the Bank of England base rate of 4.5%), and it compounds daily from the invoice due date.

In this guide, we'll walk you through exactly how statutory interest works, when you can claim it, how much you're entitled to, and how to enforce your rights.

What Is Statutory Interest on Late Invoices?

Statutory interest is an automatic right granted to UK businesses when they're not paid on time. It's not a penalty or an optional charge—it's a legal entitlement backed by Parliament. The amount owed grows every single day the invoice remains unpaid, from the moment the payment deadline passes.

The concept exists because late payment damages small businesses. Late payment of commercial debts forces you to cover cash flow shortfalls, delays your own supplier payments, and can force you to borrow money at commercial rates while waiting for payment. Statutory interest is compensation for that damage.

Unlike penalty clauses, which courts sometimes reduce as unfair, statutory interest is fixed by law. Your customer can't argue it away, can't negotiate it down, and can't claim it's unreasonable. If you're owed money and it's late, you're entitled to claim it automatically.

The Current Statutory Interest Rate in 2026

The statutory interest rate changes every time the Bank of England alters its base rate. From April 2026, the rate is:

8% + 4.5% (Bank of England base rate) = 12.5% per annum

This rate applies to all unpaid invoices unless your contract specifies a different rate. That contract rate must be "fair and reasonable"—significantly higher rates can be challenged and reduced by courts, though 12.5% is well within acceptable bounds.

The interest accrues daily, compounding annually. This means on a £10,000 invoice unpaid for 30 days, you'd be entitled to roughly £104 in statutory interest. Over 90 days, that grows to £312. If it remains unpaid for a year, you'd claim £1,250 in statutory interest alone, plus recovery costs and debt collection fees.

Who Can Claim Statutory Interest?

You can claim statutory interest on late invoices if:

• You supply goods or services as a business (sole trader, limited company, partnership, freelancer)
• Your customer is a business or public body (B2B or B2G transactions only—consumer sales don't qualify)
• A contract or invoice exists with agreed payment terms
• Payment is late beyond the agreed due date (or 30 days from invoice date if no terms are specified)

The Late Payment Act explicitly covers:

• Invoices from freelancers and sole traders to other businesses
• Small businesses claiming against larger suppliers
• Subcontractors claiming against main contractors
• Service providers claiming against government departments and local councils

It does not cover consumer sales (B2C), where statutory interest doesn't apply. It also doesn't apply to loans, credit agreements, or certain financial transactions.

How Statutory Interest Is Calculated

The calculation is straightforward:

Statutory Interest = Invoice Amount × Interest Rate ÷ 365 × Number of Days Late

Let's work through a real example:

• Invoice amount: £5,000
• Due date: 30 April 2026
• Payment date: 30 June 2026 (61 days late)
• Interest rate: 12.5%

Calculation: £5,000 × 0.125 ÷ 365 × 61 = £104.79

You're entitled to claim this £104.79 in addition to the original £5,000 invoice. If the customer pays on 30 July (91 days late), the interest grows to £157.19.

The interest compounds annually, so after 12 months unpaid, you'd be claiming £625 in interest (plus you'd also be entitled to recovery costs—see below).

The Late Payment of Commercial Debts (Interest) Act 1998: Your Legal Foundation

The Late Payment of Commercial Debts (Interest) Act 1998 is the statute that gives you these rights. It applies to almost all B2B invoices in the UK, with very few exceptions (financial services, some insurance contracts, and a handful of others).

Key points from the Act:

• Section 1A sets the statutory interest rate as 8% plus the Bank of England base rate
• Section 3 requires payment within 30 days unless your contract specifies otherwise (but never less than 30 days)
• Section 4 allows you to recover "reasonable recovery costs" in addition to interest
• Section 7 prevents customers from contracting out of these protections—they can't make you sign away your rights

The Act has been updated several times (including the Late Payment of Commercial Debts (Interest) (No. 3) Regulations 2002), and it's consistently upheld by UK courts. If a customer claims they don't have to pay interest, they're wrong—unless you're dealing with a consumer, a charity, or a specific exempted sector.

Payment Terms and Default Due Dates

The Act says you must be paid within a "reasonable" time. In practice, this means:

• If your invoice states payment is due in 30 days: Interest accrues 30 days after invoice date (or, if later, after the goods/services are delivered)
• If your invoice states payment is due in 60 days: Interest accrues 60 days after invoice date
• If your invoice doesn't state terms: The default is 30 days from invoice date
• If you use standard terms: Your stated payment terms override the default, provided they're not obviously unfair

Critically, even if your invoice says "Net 30" and the customer doesn't acknowledge it, you can still claim statutory interest after 30 days. The Act doesn't require the customer to have explicitly agreed—the invoice itself establishes the terms.

Recovery Costs: An Additional Layer of Protection

Beyond the interest itself, the Late Payment Act allows you to claim "reasonable recovery costs." These cover:

• Dunning costs: Administrative expenses for chasing payment (printing, postage, staff time spent on follow-up)
• Interest on debt collection loans: If you had to borrow money to cover the shortfall
• Professional fees: Accountant or legal fees incurred due to the late payment
• Insolvency investigation costs: Fees paid to check if the customer is solvent

You can't claim £50 for one follow-up call, but you can claim for documented, substantial costs directly caused by the late payment. If you're chasing a £50,000 unpaid invoice, recovery costs might reasonably be £200–500, depending on the effort involved.

When Late Payment Interest Does NOT Apply

Statutory interest doesn't apply in these situations:

• Consumer transactions: You're selling to an individual for personal use
• Charity sales: Your customer is a registered charity
• Public bodies in some cases: Central government departments have different rules (though local councils and NHS trusts are covered)
• Financial services: Banking, insurance, and investment services are excluded
• No written contract or invoice: Though in practice, an invoice usually establishes the terms

If you're unsure whether the Act applies, consider: Is this a business-to-business transaction where goods or services are supplied for money? If yes, the Act almost certainly applies.

How to Claim Statutory Interest on Your Unpaid Invoices

Step 1: Document everything. Gather your original invoice, proof of delivery, any correspondence about payment terms, and evidence that payment is now late. Keep a record of the due date and the payment date (or the date you're calculating interest to).

Step 2: Send a formal reminder. Contact your customer in writing (email is fine) stating clearly that the invoice is overdue, the amount owed, the due date, and that statutory interest is now accruing at 12.5% per annum. Many customers simply need a formal reminder.

Step 3: Calculate your claim. Use the formula above (or our free calculator) to determine exactly how much statutory interest you're entitled to claim as of today. Include any recovery costs if applicable.

Step 4: Issue a formal demand. Send a letter before action, stating the original invoice amount, the date of the invoice, the due date, the current date, the statutory interest accrued, any recovery costs, and the total amount now due. Give them 7–14 days to pay.

Step 5: Consider escalation. If they still don't pay, you can pursue a county court claim (for amounts under £100,000). Most customers will pay once they realize you're serious about claiming the statutory interest and recovery costs—the total amount often surprises them.

Real-World Scenarios: When Statutory Interest Saves Your Business

Scenario 1: The Slow-Paying Corporate Client

You invoice a mid-sized retailer £8,000 on 1 March 2026 with Net 30 terms. They finally pay on 15 June—106 days late. You're entitled to statutory interest of roughly £291. Most businesses don't volunteer this, but you can legally claim it as part of your follow-up. Multiplied across several overdue invoices, statutory interest can be the difference between breaking even and making a profit in that quarter.

Scenario 2: The Contractor Who Disputes the Invoice

A larger company claims to dispute part of your invoice, using the dispute as a reason to hold payment. However, they still owe something, and they can't simply refuse to pay. Interest continues to accrue on the undisputed portion. Once the dispute is resolved, you claim statutory interest from the original due date. This incentivizes them to resolve disputes quickly rather than dragging them out.

Scenario 3: The Business on the Brink

You're a freelancer with three clients, and one owes you £6,000 from 60 days ago. You need that money now. A formal demand letter citing the statutory interest owed—£206 and climbing—often triggers payment faster than a polite reminder. Some customers pay immediately once they realize there are legal consequences to their delay.

Challenging Unfair Payment Terms

Your contract might state Net 60 or even Net 90 days. That's legally permitted—you can agree to longer terms if you choose. However, the Act includes protections against "substantially different" or "unfair" payment terms.

For example, if a large corporation insists you accept Net 120 days while paying their own suppliers in 30 days, that term can be challenged as unfair under the Act. It's an uphill battle (courts are reluctant to interfere with contracts), but if the imbalance is severe, you have grounds.

In practice, the best defense is to negotiate reasonable terms upfront and enforce them consistently. Most customers will respect Net 30 or Net 45 terms if you make it clear they're not optional.

The Bottom Line: Statutory Interest Is Your Right, Not a Favor

Many UK business owners don't claim the statutory interest they're legally entitled to, often because they don't know it exists or feel awkward asking for it. This is a mistake.

Your customer isn't doing you a favor by paying your invoice—they're fulfilling their legal obligation. When they pay late, they owe you not just the original amount, but the statutory interest that compensation is codified in law. By claiming it, you're not being greedy; you're being professional and protecting your business's cash flow.

The Late Payment of Commercial Debts (Interest) Act 1998 exists because late payment damages businesses. Every day an invoice sits unpaid, you're carrying the cost. Statutory interest is Parliament's way of making the customer bear that cost instead of you.

Start today: review your unpaid invoices. If any are more than 30 days overdue, you're entitled to claim statutory interest. Calculate what you're owed, send a formal demand, and enforce your legal rights. Your business depends on it.