Late Payment Act 1998 Explained

Statutory interest

8% a year above the Bank of England base rate

Fixed compensation

£40, £70 or £100 per debt, by size

Recovery costs

Reasonable costs above the fixed sum

Contracting out

Only with a substantial remedy

What the Act gives you the right to claim, at a glance

The Late Payment of Commercial Debts (Interest) Act 1998 lets a business charge interest and compensation when another business pays late. It applies where the supplier and the purchaser are both acting in the course of a business, which covers an agency supplying temps to a client. It applies across the UK: England, Wales, Scotland and Northern Ireland.

When a client pays one of your invoices late, you can claim:

• Statutory interest on the unpaid amount, from the day after the payment became late.
• Fixed compensation of £40, £70 or £100, depending on the size of the debt.
• Reasonable recovery costs above that fixed sum, if they are higher.

You don't need a clause in your terms of business. Section 1 makes the right an implied term of every contract the Act covers: the debt carries simple interest whether or not your contract mentions it. To see what a specific overdue invoice has built up, use our late payment interest calculator.

The same rules work the other way. If your contractors invoice you through their own limited companies, they can claim statutory interest from you when you pay them late.

When a commercial debt counts as late

Section 4 sets the day after which interest starts to run:

• If no payment date was agreed, interest runs after 30 days. The 30 days start from the later of the day you delivered the service and the day the client had notice of the amount, which is usually when it got your invoice.
• If you agreed a payment date, interest runs after that date. But if the client is a business and the agreed date falls more than 60 days after the later of those two days, interest starts after day 60 instead, unless the longer term is not grossly unfair to you.
• If the client is a public authority, the same cut-off is 30 days, with no exception for longer terms.

These rules don't cap payment terms. A client can still agree 90-day terms with you and pay on that date. What the 60-day rule changes is when statutory interest starts: after day 60, unless the longer term is not grossly unfair to you. For a debt that falls due before the work is done, such as an advance payment, section 4(2G) sets a different start date.

If your contract has an acceptance or verification procedure, such as a client signing off each timesheet, section 4(5A) to (5D) applies: the 30- and 60-day periods run from when that procedure is completed, as long as the client had your invoice by then. But a procedure that takes longer than 30 days from the work being done is treated as finished at day 30, unless you expressly agreed a longer period and it is not grossly unfair to you.

Statutory interest: the Bank of England base rate plus 8%

The rate is set by the Late Payment of Commercial Debts (Rate of Interest) (No. 3) Order 2002 (SI 2002/1675) for England, Wales and Northern Ireland, and by an identical Scottish order (SSI 2002/336). It is 8% a year above the Bank of England's official dealing rate, usually called the base rate.

The base rate used is fixed twice a year. If interest starts to run between 1 July and 31 December, it's the rate in force on the 30 June before. If it starts between 1 January and 30 June, it's the rate in force on the 31 December before. The rate then stays the same for that debt, even if the Bank changes base rate while the invoice is unpaid.

We don't quote a current percentage here, because base rate changes. The gov.uk guide to late commercial payments states the same formula and links to the Bank's current and previous rates. Our late payment interest calculator applies the right reference date and shows the daily figure.

Fixed compensation: £40, £70 or £100 depending on the debt

Section 5A adds a fixed sum once statutory interest starts to run, on top of the interest:

• £40 for a debt of less than £1,000
• £70 for a debt of £1,000 or more but less than £10,000
• £100 for a debt of £10,000 or more

gov.uk says you can charge the fixed sum once for each payment, so each late invoice normally carries its own fixed sum. Since the Late Payment of Commercial Debts Regulations 2013 (SI 2013/395), and the matching Scottish regulations (SSI 2013/77), section 5A(2A) also lets you claim the difference where your reasonable costs of recovering the debt are more than the fixed sum.

Can a contract remove these rights?

Only in limited cases. Under section 8, a contract term is void to the extent that it tries to exclude statutory interest, unless the contract gives you a substantial contractual remedy for late payment instead. A term that cuts statutory interest down, for example to a lower rate, is void too if neither the reduced right nor the overall remedy for late payment is a substantial remedy.

Section 9 says a remedy is not substantial if it is insufficient to compensate you or deter late payment, and it would not be fair or reasonable to let it replace statutory interest. The court looks at the circumstances when the terms were agreed, including the parties' bargaining power and whether one side imposed the term on the other, for example through its standard terms. If a client's terms of business say the Act doesn't apply and offer nothing in its place, that term is likely to be void.

How to actually claim it, from invoice to letter before action

1. Check the terms. Confirm the agreed payment date and whether the contract sets its own late payment remedy.
2. Work out what's owed. Put the invoice amount and due date into the late payment interest calculator to get the interest, the daily rate and the fixed compensation.
3. Claim it in writing. Send the client a new invoice or statement for the interest and compensation, as gov.uk suggests, and keep chasing the original invoice.
4. Send a letter before action. If the client still won't pay, our letter before action generator drafts one with the figures included. It is for a debt owed by a company or other business that is not a sole trader, and for England and Wales only; Scotland and Northern Ireland have their own court procedures. If the client is an individual or sole trader, follow the Pre-Action Protocol for Debt Claims instead: it gives the debtor 30 days to reply.
5. Consider a court claim. If the deadline passes without payment, you can claim the debt, interest and compensation through the courts.

How Templio flags overdue invoices automatically

Templio raises client invoices from approved timesheets and checks them against their due dates every day. Once a sent invoice passes its due date, it is flagged as overdue, so late payers are visible before month end. You can mark an invoice as paid when the money arrives, and if you use Xero, payment status flows back when the client pays.

Templio doesn't add statutory interest or compensation to your invoices. Use the calculator for the figures and claim them yourself. If you also run contractor pay through self-billing, see our self-billing invoices guide. Start your 14-day free trial, no card required.

This guide is general information, not legal advice. It reflects the law and gov.uk guidance as at the "Last reviewed" date. Check the live legislation.gov.uk and gov.uk pages before relying on a specific rule.