Charging late payment interest and compensation on invoices

When another business pays you late, you can add statutory interest of 8% a year plus the Bank of England base rate, and a fixed compensation sum of £40, £70 or £100. For late payments where interest starts to run between 1 July and 31 December 2026, the statutory rate is 11.75%. You claim both by sending the customer a new invoice.

Who can charge late payment interest?

Any business supplying goods or services to another business, or to a public authority, can claim. The right comes from the Late Payment of Commercial Debts (Interest) Act 1998. It does not cover sales to consumers.

There is one main exception. GOV.UK says you cannot claim statutory interest if your contract sets a different rate of interest. In a contract with a public authority, you cannot use a lower rate than the statutory one.

When does an invoice count as late?

An invoice is late once the agreed payment date has passed. If you agreed no date, it is late 30 days after the later of these two events:

• the customer receives your invoice
• you deliver the goods or provide the service

Agreed terms must usually be within 30 days for public authorities and 60 days between businesses. Longer business terms are allowed only if they are fair to both sides. Our guide to payment terms covers how to set them.

What is the statutory interest rate now?

The rate is 8% plus the Bank of England base rate on a fixed reference date. Article 4 of the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 sets two reference dates a year.

The Bank of England raised Bank Rate from 3.75% to 4% on 5 November 2026. That rise does not affect debts that fall late before 1 January 2027. If Bank Rate is still 4% on 31 December 2026, the statutory rate for interest starting from 1 January 2027 will be 12%. The next rate decision is on 17 December 2026.

How to calculate late payment interest

You work out a daily rate and multiply it by the number of days late.

1. Multiply the debt by the statutory rate to get the annual interest.
2. Divide by 365 to get the daily interest.
3. Multiply by the number of days the payment is late.
4. Add the fixed compensation sum for the debt size.

Worked example. A £5,000 invoice falls due on 1 October 2026 and is paid 40 days late. Annual interest is £5,000 × 11.75% = £587.50. Daily interest is £587.50 ÷ 365 = £1.61. Interest for 40 days is about £64.38. Add £70 compensation, and you can claim £134.38 on top of the £5,000.

Our late payment interest calculator does the sums for any amount and date.

How much compensation can you claim?

Compensation is a fixed sum set by the late payment legislation, based on the size of the debt.

You can charge it only once for each payment. GOV.UK adds that you can also claim reasonable costs each time you try to recover the debt, such as a debt collection agency’s fees.

How to claim interest and compensation

GOV.UK says to send a new invoice if you decide to add interest. A simple process:

1. Check your contract does not set its own interest rate.
2. Confirm the date the payment became late.
3. Calculate interest to date and the compensation band.
4. Send a new invoice showing the original debt, the interest, the compensation and how you worked them out.
5. If the customer still does not pay, consider a formal demand or make a court claim.

Many small firms waive interest to keep a good customer. That is your choice; the right to claim remains.

What is changing: the Late Payments Bill

The Commercial Payments (Late Payments) Bill would tighten these rules, but it is not yet law. The Small Business Commissioner says the Bill has passed the House of Lords and had its First Reading in the House of Commons. Its main measures are:

• a 60-day maximum payment term for large businesses paying smaller suppliers
• mandatory statutory interest at 8% above base rate, which contracts could not exclude
• a ban on construction cash retentions
• new powers for the Small Business Commissioner, including fines

No start date has been confirmed, and details may change. See our page on the Small Business Commissioner for how to complain about a late payer now.

What to do now

• Put your payment terms and the right to statutory interest on every invoice.
• Use the 11.75% rate for debts falling late before 1 January 2027.
• Check the Bank Rate on 31 December 2026 before claiming on debts that fall late in 2027.
• Keep dated records of when invoices were received and goods delivered.

Frequently asked questions

What is the late payment interest rate in November 2026?

For interest that starts to run between 1 July and 31 December 2026, it is 11.75%. That is 8% plus the 3.75% Bank Rate on 30 June 2026.

Does the Bank Rate rise to 4% change the late payment rate?

Not straight away. The rate is fixed at each reference date, so the rise on 5 November 2026 only matters for interest starting from 1 January 2027 if Bank Rate is still 4% on 31 December 2026.

Can I charge late payment interest to consumers?

No. The statutory scheme covers business-to-business and business-to-public sector debts only.

Can I charge compensation more than once on the same invoice?

No. GOV.UK says you can charge the fixed sum once for each payment, though you can also claim reasonable recovery costs.

Is late payment interest mandatory?

Not yet. You choose whether to claim it. The Late Payments Bill would make it mandatory once it becomes law and comes into force.