Late Payment Of Commercial Debts: The Law & Your Rights

Mariam Abu HusseinLegal Assessment Specialist @ Lawhive
Updated on 8th May 2024

The Late Payment of Commercial Debts (Interest) 1998 Act serves two main purposes: 

  1. To compensate creditors for the late payment of debts

  2. To discourage late payment practices. 

It applies to the commercial supply of goods and services where there is no provision for interest in the Terms of Business. 


In this article, we will explore the Late Payment of Commercial Debts (Interest) Act 1998, including the main purposes of the Act, what you can claim for late payment of commercial debts, when you can claim late payment, interest, and costs, and time limits for making such claims.

Table of Contents

What can you claim for late payment of commercial debts? 

If invoices are not paid on time, the Act allows you to claim: 

  1. Statutory interest at a rate of 8% over the Bank of England base rate

  2. Compensation ranging from £40 to £100 per invoice 

  3. Reasonable costs of collecting the debt if they go over the compensation amount. 

When can you claim late payment, interest, and costs?

You can claim late payment interest, compensation, and costs if you have supplied goods or services to another business and your invoices were not paid within the credit period. 

You can’t claim if the contract involves consumers or certain contracts such as consumer credit agreements or contracts involving mortgages, pledges, charges, or other securities. Additionally, contracts of service or apprenticeship, like employment agreements, are not considered contracts for the supply of goods or services under this Act.

When is interest normally payable on overdue commercial payments? 

Interest is typically payable from the end of the agreed credit period. Or, if no credit period is agreed, interest is payable 30 days from:

  • The date of supply, or 

  • The date the buyer was informed of the amount due, or 

  • The completion of any procedure for verifying that the goods conform to the contract (which can’t exceed 30 days)

Whichever is the latest.

How does the payment period differ for supplying public authorities and other businesses? 

If you supply to a public authority, interest is payable after 30 days, regardless of any longer payment date agreed upon. 

If you supply to another business, interest is usually payable after 60 days, even if a longer payment date is agreed upon. However, a credit period exceeding 60 days may be agreed upon if it’s not unfairly disadvantageous to you. 

How much interest can I charge for late payments? 

If your contract includes a clause relating to late payment interests, you must charge interest in line with that agreement. 

If there is no such clause, you can claim interest at a rate of 8% over the Bank of England Base Rate per annum, calculated based on the rate from the previous 31st December or 30th June. 

When can I claim interest for late payments? 

Interest can be claimed for the period starting from the date the invoice should have been paid until the date it was paid.

Is there a time limit for claiming interest for late payments? 

You have up to 6 years to claim the interest owed under the Late Payment of Commercial Debts (Interest) Act 1998. 

How much compensation can I claim for late payments?

If your terms and conditions don’t include a clause regarding late payment, the amount of compensation you can claim depends on the value of the invoice: 

  • For invoices up to £999.99, you can claim £40 per invoice

  • For invoices between £1,000 and £9,999.99, you can claim £70 per invoice 

  • For invoices over £10,000, you can claim £100 per invoice. 

If your terms and conditions include a clause regarding late payment, you must charge compensation in line with the terms. 

What collection costs can I claim compensation for?

If you're dealing with a late payment on a commercial debt, you can claim your costs for trying to collect the debt. 

If these expenses are more than the compensation amount, you can claim those costs as well. This might include things like the time and resources you spend on credit control, fees for Debt Collection Agencies, or legal costs if you need to involve a solicitor to recover the debt.

Do I need to send a warning letter before claiming interest, compensation, or costs for late payments? 

By law, you don’t have to send any warnings to your customer before claiming interest, compensation, or costs under the Late Payment of Commercial Debts (Interest) Act or through legal proceedings. 

You can claim compensation and interest as soon as the payment becomes overdue by invoicing the customer directly.

However, you may want to set the expectation for timely payment of invoices with customers by including warnings about potential penalties for late payments on your invoices, statements, and in your terms of business. 

A commercial solicitor can help you draft terms of business to include this.

What happens if there’s a dispute over late payment interest, compensation, or costs? 

In the event of a dispute, the customer should pay the amount they agree is due in the first instance, and you are perfectly within your rights to claim late payment interest, compensation, and costs on the undisputed amount. 

For the disputed amount, you won’t be able to claim any interest, compensation, or costs until the matter is resolved. 

Sometimes, late payment disputes can be solved through conversations between the two parties. However, if you can’t reach an agreement, you may need to seek legal advice or consider alternative dispute resolution methods, like mediation. 

Is the Act the only way I can charge interest for late payments? 

You can make your own arrangements for late payments as agreed between you and your customer. However, if your terms of business already include interest for late payments, you can't claim additional late payment penalties under the Late Payment legislation. 

If you want to rely on the Late Payment legislation instead, you'll need to update your terms of business and inform your customers, however existing contracts will still be governed by the terms of business in place at the time they were established.

How can Lawhive help?

At Lawhive, our network of experienced commercial solicitors can help you by: 

  1. Reviewing your terms of business to make sure you’re maximising your potential for recovering costs in the event of late payments. 

  2. Draft new terms of business tailored to your specific business needs.

  3. Help you claim interest and compensation from past debtors for up to six years 

  4. Draft and send Late Payment Demands on your behalf

  5. Initiate court proceedings on your behalf, should this be needed. 

To find out more, and get a free quote for the services of a specialist lawyer, contact our Legal Assessment Specialists today

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