Late Payment Interest UK: How to Charge Interest on Overdue Invoices

If a client hasn't paid your invoice on time, you have a legal right to charge interest in the UK. This isn't just a nice policy — it's backed by the Late Payment of Commercial Debts (Interest) Act 1998.

Here's everything you need to know about charging late payment interest as a UK freelancer or small business.

Your Legal Right to Charge Late Payment Interest

Under UK law, if a business owes you money and hasn't paid within the agreed payment terms (or 30 days if no terms were set), you can charge:

8% above the Bank of England base rate in statutory interest
A fixed debt recovery charge (£40, £70, or £100 depending on the debt amount)
Reasonable debt recovery costs if you needed to hire a solicitor or agency

This applies to business-to-business (B2B) transactions. If your client is a consumer (not a business), different rules may apply.

Current Late Payment Interest Rate UK

The statutory interest rate is 8% + the Bank of England base rate. As of early 2026, with the base rate at around 4.5%, that makes the total statutory rate approximately 12.5% per year.

The rate is fixed at the date the debt becomes late and doesn't change during the recovery period.

Fixed Debt Recovery Charges

In addition to interest, you can claim a fixed charge:

| Invoice Amount | Fixed Charge | |----------------|-------------| | Up to £999.99 | £40 | | £1,000 to £9,999.99 | £70 | | £10,000 or more | £100 |

These charges are meant to cover the administrative cost of chasing the debt.

How to Calculate Late Payment Interest

Formula:

Statutory Interest = Debt × (8% + Base Rate) ÷ 365 × Number of Days Late

Example:

Invoice: £2,000
Days late: 45
Base rate: 4.5%
Total rate: 12.5%

£2,000 × 12.5% ÷ 365 × 45 = £30.82 interest Plus fixed recovery charge: £70 Total extra you can claim: £100.82

How to Add Late Payment Interest to an Invoice

When you're ready to claim interest, you can either:

Add it to the original invoice — update the invoice with an additional line item
Send a separate invoice — create a new invoice specifically for the interest and recovery charge

Either way, clearly state:

The original invoice amount and date
The payment due date
The number of days overdue
The interest rate applied
The total interest charged
Any fixed debt recovery charge

Should You Always Charge Late Payment Interest?

Not necessarily. Consider the relationship:

One-off or difficult client? Charge it — it reinforces your terms and covers your time.
Valued long-term client? You might waive it this once but make it clear you expect prompt payment going forward.
Client is in financial difficulty? Agree a payment plan instead — interest won't help if they can't pay.

Whatever you decide, document everything in writing.

How to Prevent Late Payments in the First Place

The best strategy is avoiding the problem:

Set clear payment terms — 14 or 30 days is standard. State this on every invoice.
Send invoices promptly — don't delay sending after completing work.
Follow up early — a polite reminder the day before the due date often works.
Chase quickly — don't wait weeks before escalating.
Use invoice software — tools like Billdrop let you set due dates, track payment status, and send reminders automatically.

When to Escalate

If interest charges and polite reminders aren't working:

Letter Before Action (LBA) — a formal warning that you'll take legal action
Small Claims Court — for debts up to £10,000 in England and Wales, it's straightforward and low cost
Debt recovery agency — for larger debts or clients who repeatedly ignore you

Summary

| What | Details | |------|---------| | Legal basis | Late Payment of Commercial Debts Act 1998 | | Interest rate | 8% + Bank of England base rate (~12.5% in 2026) | | Fixed charges | £40, £70, or £100 depending on debt size | | Applies to | B2B transactions | | Payment terms default | 30 days if none agreed |

You have every right to charge late payment interest in the UK. Whether you do is a business decision — but knowing your rights means you're never in a weak position.

Manage your invoices and track payment status with Billdrop — free for UK freelancers.