Statutory Interest on Late Invoices in the UK: Your Complete 2026 Guide

If you're a freelancer, sole trader, or small business owner in the UK, you have a legal right to charge statutory interest on late invoices. Under the Late Payment of Commercial Debts (Interest) Act 1998, when a client fails to pay on time, you can claim interest on the outstanding amount—regardless of whether your contract mentions it. In 2026, the statutory rate stands at 12.50% per annum (8% base rate plus the Bank of England base rate of 4.50%), yet most small business owners never claim it. This guide explains how statutory interest works, how to calculate it, and exactly how to recover what you're owed.

Understanding the Late Payment of Commercial Debts (Interest) Act 1998

The Late Payment Act exists to protect businesses from cash flow damage caused by late payment. It's a right that applies to most commercial transactions in the UK—whether you mentioned it in your contract or not. Here's what you need to know:

• Who it protects: Sole traders, partnerships, limited companies, and charities supplying goods or services to other businesses
• When it applies: Immediately upon the due date passing, which is typically 30 days from invoice date (or as stated in your contract)
• Who must pay it: The organisation that received your invoice—whether they're a micro-enterprise, SME, or large corporation
• What you can claim: Interest on the full invoice amount, plus "reasonable debt recovery costs" (starting at £40 for smaller debts)

Critically, this right exists even if your contract says "net 30 days" with no mention of interest. The Act automatically gives you statutory interest rights.

How to Calculate Statutory Interest on Late Invoices in 2026

The current rate for calculating statutory interest on late invoices is straightforward but often misunderstood:

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

As of April 2026, the Bank of England base rate is 4.50%, making the statutory interest rate 12.50% per annum.

The formula is simple:

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

Worked Example

Let's say you invoice a client for £2,000 on 1st April 2026, with payment due by 1st May. They pay on 15th June—45 days late.

• Invoice amount: £2,000
• Days late: 45
• Statutory interest rate: 12.50%
• Interest owed: (£2,000 × 12.50% × 45) ÷ 365 = £30.82
• Debt recovery cost: £40 (if debt exceeds £1,000)
• Total recovery: £70.82

That's often the difference between breaking even and a cash flow crisis for a small business. Yet without knowing your rights, many invoices remain unpaid indefinitely—and unclaimed interest compounds the loss.

Your Rights Under the Late Payment Act

The Act gives you three key entitlements:

1. The Right to Interest

You can charge statutory interest on late invoices from the day payment is due. The interest accrues daily and continues until the debt is paid. There's no upper limit—if someone owes you money for a year, you can claim a full year's interest.

2. The Right to Debt Recovery Costs

Beyond interest, you can recover "reasonable costs of pursuing the debt." The Act sets a standard scale:

• Debts up to £999.99: £40
• Debts £1,000 to £9,999.99: £70
• Debts £10,000+: £100

These are minimum costs. If you've spent more (e.g., solicitor's letters, court fees), you can claim those actual costs instead if they're reasonable.

3. The Right to Exclude or Vary the Rate (With Limits)

A contract can reduce the statutory rate—but only with specific, agreed language. Blanket "no interest" clauses are unenforceable. The customer cannot simply opt out of the Late Payment Act by claiming "our standard terms say no interest."

How to Claim Statutory Interest on Late Invoices

You don't need a solicitor to claim. Here's the process:

Step 1: Document Everything

Before chasing interest, gather:

• Your original invoice (with payment terms clearly stated)
• Email evidence of the invoice being sent
• Record of when payment was actually received
• Any payment terms in your contract

Step 2: Send a Formal Demand

Write to the debtor (email is acceptable, but send it recorded delivery for proof). Include:

• Original invoice amount
• Due date and actual payment date
• Calculation of interest owed (show your maths)
• Debt recovery cost
• Total amount now due
• A deadline for payment (7–14 days is standard)
• A statement that you're claiming under the Late Payment of Commercial Debts (Interest) Act 1998

Example wording:

"I am writing to formally claim statutory interest and debt recovery costs under the Late Payment of Commercial Debts (Interest) Act 1998. As of [date], your account is [X] days overdue. The statutory interest accrued to date is £[X], plus £40 in debt recovery costs. Total amount now due: £[total]. Please pay within 7 days."

Step 3: If They Still Don't Pay—Escalate

If your formal demand is ignored, consider:

• County Court Claim: For debts under £10,000, use the Small Claims Track (lower cost, simpler process). The court will usually award interest plus costs in your favour if the debt is clear.
• Debt Recovery Agent: A professional will chase the debt for a percentage of recovery (typically 15–20%).
• Insolvency Action: If the debtor is a limited company and owes over £750, you can petition for insolvency—a powerful motivator for payment.

Common Mistakes Businesses Make

Mistake 1: Not Mentioning Interest Upfront

While the Late Payment Act applies automatically, explicitly stating your payment terms—including that statutory interest will be charged—makes a psychological difference. Many debtors simply don't realise you'll enforce it.

Add this to your invoices: "Payment due [date]. Statutory interest will be charged on overdue amounts under the Late Payment of Commercial Debts (Interest) Act 1998."

Mistake 2: Waiting Too Long to Chase

Interest accrues daily, but you lose leverage over time. A 90-day overdue invoice with £150 in interest feels less significant than being chased immediately. Chase within 7 days of the due date. Interest on late invoices only matters if you claim it—and claiming it quickly sends a message.

Mistake 3: Miscalculating the Interest Rate

The statutory interest rate on late invoices changes when the Bank of England base rate changes. As of April 2026, it's 12.50% (8% + 4.50% base rate). If your invoice was due in January 2026 when the rate was different, use the rate applicable on the due date for that specific invoice. Keep records of historical rates for your records.

Mistake 4: Not Claiming Debt Recovery Costs

Many businesses claim the interest but forget the cost component. That's money left on the table. Always claim the applicable cost when you send your demand.

Real-World Scenarios

Scenario: The Slow Payer

You're a freelance copywriter. You invoice a marketing agency on 15th April 2026 for £1,500, due 15th May. They pay on 20th July (66 days late).

Calculation:

• Interest: (£1,500 × 12.50% × 66) ÷ 365 = £33.70
• Debt recovery cost: £40
• Total recovery: £73.70

That's nearly 5% of the original invoice. Over a year, if this happens monthly, you've recovered over £880 in pure interest and costs.

Scenario: The Large Late Payment

You're an IT consultant. You invoice a company for £8,500 on 1st March, due 30th April. They don't pay until 31st August (123 days late).

Calculation:

• Interest: (£8,500 × 12.50% × 123) ÷ 365 = £359.65
• Debt recovery cost: £70
• Total recovery: £429.65

A 4-month delay cost them an extra £429. Most large companies expect this—they calculate it into their cash management strategy. Don't leave it unpaid.

Using Technology to Track and Claim Statutory Interest

For a small business managing multiple invoices, manual calculation of statutory interest on late invoices becomes tedious. Consider using:

• Invoicing software with late payment tracking: Many modern platforms flag overdue invoices and calculate interest automatically.
• Spreadsheets with formulas: A simple Excel sheet can auto-calculate interest based on invoice dates and current payment status.
• Dedicated debt recovery calculators: Free tools are available online to verify your calculations before sending a demand.

What If the Customer Claims Hardship?

The Late Payment Act includes a "significant hardship" clause. If a debtor can prove that paying the interest would cause them significant financial hardship and that it would be grossly unjust to enforce the full interest, a court may reduce it. However:

• This is rare and requires court action
• It doesn't eliminate interest—it may reduce it
• It's your discretion to waive it voluntarily (some businesses do for goodwill)
• Most debtors claiming "hardship" are simply hoping you won't pursue it

Be sympathetic to genuine financial difficulty, but don't let it become routine. If a customer is chronically late, they're not a good customer.

Statutory Interest and VAT

A quick technical note: the interest you charge is not subject to VAT. You don't need to add VAT to the interest amount—it stands as-is. Record it separately in your accounts for clarity, but you can claim it without any VAT complications.

Key Takeaways

Statutory interest on late invoices is a powerful, legally backed tool for protecting your cash flow:

• You have automatic rights under the Late Payment of Commercial Debts (Interest) Act 1998
• The current rate is 12.50% per annum (8% + 4.50% Bank of England base rate)
• You can claim interest plus debt recovery costs immediately after the due date passes
• Interest accrues daily—a 90-day delay on a £5,000 invoice costs the debtor over £150
• You don't need a solicitor to claim; a formal letter is usually enough
• If they ignore your demand, you have court and insolvency options
• Mentioning interest upfront and chasing quickly reduces delays significantly

The Act exists because late payment destroys small businesses. Use it. Your cash flow depends on it.

Next Steps

If you have an overdue invoice, calculate what you're owed and send a formal demand today. The statutory interest clock is ticking, and every day costs the debtor more. Don't let cash flow delays cripple your business—the law is on your side.