BUSINESS: Your right to charge late payment fees

Late payments, it's the hardest thing for a small business but even more so during this more difficult time!

Not every business owner knows that they have a legal right to charge late payment fees. The Late Payment of Commercial Debts 1988 Act was established to protect business owners against late and missed payments. It ensures that as a business, if debts are not paid to you on time, you can charge interest and compensation on overdue accounts.

When is a payment late?

You can claim interest and debt recovery costs if another business is late paying for goods or a service.

If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business transactions.

You can agree a longer period than 60 days for business transactions - but it must be fair to both businesses.

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

  • the customer gets the invoice

  • you deliver the goods or provide the service (if this is late

Interest on late commercial payments

The interest you can charge if another business is late paying for goods or a service is ‘statutory interest’ - this is 8% plus the Bank of England base rate for business to business transactions. You cannot claim statutory interest if there’s a different rate of interest in a contract.


If your business were owed £1,000 and the Bank of England base rate were 0.5%:

  • the annual statutory interest on this would be £85 (1,000 x 0.085 = £85)

  • divide £85 by 365 to get the daily interest: 23p a day (85 / 365 = 0.23)

  • after 50 days this would be £11.50 (50 x 0.23 = 11.50)

Send a new invoice if you decide to add interest to the money you’re owed.

Check the current Bank of England base rate and previous rates.

Claim debt recovery costs on late payments

You can also charge a business a fixed sum for the cost of recovering a late commercial payment on top of claiming interest from it.

The amount you’re allowed to charge depends on the amount of debt. You can only charge the business once for each payment.

These amounts are set by late payment legislation.

If you’re a supplier, you can also claim for reasonable costs each time you try to recover the debt.

Read more on recovering debt.


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