Chasing Late Payments: Statutory Interest and Fees

If another business pays you late, the law lets you charge statutory interest of 8% plus the Bank of England base rate, and add a fixed sum of £40, £70 or £100 per invoice towards your recovery costs. You do not need a clause in your contract to do this, but the rules only cover business customers, not consumers. Knowing your rights is half the job. The other half is a steady credit control routine, so that most invoices are paid before interest ever comes up.

Key takeaways

• With no agreed date, a business-to-business payment is late 30 days after the customer gets the invoice, or after delivery if that is later.
• Statutory interest is 8% plus the Bank of England base rate, unless your contract sets a different rate.
• You can also claim a fixed sum of £40, £70 or £100 per late invoice, depending on the size of the debt.
• These rights do not apply to sales to consumers.
• A weekly aged debtors review and a fixed reminder schedule prevent most late payment problems.

What is statutory interest?

Statutory interest is interest the law allows a business to charge on a late commercial payment, without needing the customer's agreement in advance. The rate for business-to-business transactions is 8% plus the Bank of England base rate. The base rate moves, so check the current figure before you calculate anything. The rules are set out on GOV.UK under late commercial payments: charging interest and debt recovery.

There are two limits to remember. First, you cannot claim statutory interest if a different rate of interest is written into your contract. In that case the contract rate applies. Second, the rules cover commercial debts only. If you sell to private individuals, they do not apply.

When is a payment late?

If you and your customer agreed a payment date, the payment is late once that date has passed. GOV.UK says an agreed date must usually be within 60 days for business transactions, or 30 days where the customer is a public authority. A longer period can be agreed between businesses, but only if it is fair to both sides.

If you did not agree a date, the payment is late 30 days after either:

• the customer gets the invoice, or
• you deliver the goods or provide the service, if that is later.

This is why the date on the invoice and proof of when it was sent both matter. GOV.UK's guide to invoicing and taking payment from customers lists what an invoice must show, and our article on VAT invoice requirements covers the extra details needed if you are VAT registered.

The fixed sum for debt recovery costs

On top of interest, you can charge the customer a fixed sum for the cost of recovering a late commercial payment. You can charge it only once for each payment:

• £40 for a debt up to £999.99
• £70 for a debt of £1,000 to £9,999.99
• £100 for a debt of £10,000 or more

If you decide to add interest or the fixed sum, send the customer a new invoice showing the extra amounts so there is a clear record of what is now owed.

A credit control routine that works

Most late payment is caused by disorganisation, not bad faith. A simple routine, followed every time, does more than any legal right.

• Clear terms on every invoice. State the due date as an actual date, your bank details, and a contact for queries. Agree terms in writing before the work starts.
• Run an aged debtors report weekly. This report from your bookkeeping software lists unpaid invoices by how overdue they are. It only works if receipts are matched promptly, which is one reason regular bank reconciliation matters.
• Send statements. A monthly statement of everything outstanding often flushes out invoices the customer says they never received.
• Stop further credit. Do not keep supplying a customer who is well overdue. Ask for payment up front until the account is cleared.

Reminder schedule: what to do and when

The timings below are a sensible pattern for a small business, not legal requirements. Adjust them to your trade and your customers.

Step by step: charging interest on a late invoice

1. Confirm the customer is a business and that your contract does not set its own interest rate.
2. Work out the date the payment became late from your agreed terms or the 30 day default.
3. Check the current Bank of England base rate and add 8% to get the annual rate.
4. Calculate the daily interest: debt multiplied by the annual rate, divided by 365.
5. Multiply by the number of days late.
6. Add the fixed sum for the size of the debt.
7. Send a new invoice for the interest and fixed sum, and record it in your books.

If they still do not pay

Once reminders have failed, the two main formal routes are a court claim for money or a statutory demand. Both have fees and consequences, so read the GOV.UK guidance and consider legal advice first. Keep your paper trail: the contract or order, the invoice, proof of delivery, and every reminder.

Writing off a bad debt in the books

If a debt is clearly not going to be paid, it should not sit in your debtors figure for ever. Writing it off means recording it as a bad debt expense so that your accounts show what you will really collect. The tax treatment depends on how you account for income. Under the accruals basis the sale has already been counted as income, so the write-off matters. Under the cash basis you only count money received, so there is usually nothing to reverse. Our guide to cash basis vs accruals explains the difference. If you paid VAT to HMRC on the unpaid invoice, you may be able to reclaim it. Check the conditions in HMRC's guidance on relief from VAT on bad debts.

Worked example (illustrative)

"Northfield Signs Ltd", an illustrative example, fits shop signage for other businesses. It invoices a retailer £2,400 with a due date of 31 August 2026. Nothing in the contract mentions interest. By 15 October 2026 the invoice is 45 days late and three reminders have gone unanswered.

Purely to show the method, assume the Bank of England base rate is 4%. You must use the actual rate when you do this yourself. Statutory interest would be 8% plus 4%, so 12% a year. On £2,400 that is £288 a year, or about 79p a day (£288 divided by 365). After 45 days the interest is £35.51. The debt is between £1,000 and £9,999.99, so the fixed sum is £70.

Northfield Signs sends a new invoice for £105.51, making £2,505.51 owed in total, with a final deadline of seven days. The retailer pays the original £2,400 the next morning and asks for the extra to be waived. Whether to agree is a commercial decision for the director.

The company, the base rate and the figures are invented for illustration and are not a real client.

Common mistakes

• Vague terms. "Payment on receipt" with no date invites delay. Print the due date.
• Applying the rules to consumers. They cover commercial debts only.
• Claiming statutory interest when the contract has its own rate. The contract rate applies instead.
• Charging the fixed sum more than once per invoice.

How we can help

Good credit control depends on up-to-date books. We keep your sales ledger reconciled, send you an aged debtors report, and flag overdue invoices as part of our month-end routine. Our bookkeeping service starts from £150 per month on a fixed fee. See our pricing, or contact us to talk through your debtor list.