Under the Late Payment of Commercial Debts (Interest) Act 1998, suppliers can charge statutory interest at the Bank of England base rate plus 8% per annum on overdue commercial invoices, calculated as simple interest from the day after payment was due. On top of that interest, you can claim fixed-sum compensation for recovery costs. The Late Payment of Commercial Debts (Rate of Interest) Order 1998 sets the formula; the Office of the Small Business Commissioner (OSBC) provides a free interest calculator to estimate what you are owed before you make a formal demand; and Debtrecoveryhub can connect you with a vetted collection agency when a debtor still refuses to pay.
Table of Contents
- How the statutory rate is calculated and where to check it
- How to calculate statutory interest and the fixed compensation you can claim
- Step-by-step: from overdue invoice to enforcement
- Practical wording, accounting treatment, and handling disputes
- Recovery routes when the debtor still refuses to pay
- Key takeaways
- Why most businesses leave statutory interest on the table
- Debtrecoveryhub: matched to the right agency for your debt
- Useful sources
- FAQ
How the statutory rate is calculated and where to check it
The formula is straightforward: Bank of England base rate plus 8% per annum. That 8% uplift is fixed by the Rate of Interest Order 1998, while the base rate itself is set by the Bank of England’s Monetary Policy Committee and changes periodically.
Because the base rate moves, the applicable rate is the one in force on the relevant day (the day interest starts to run — more on that below). Check the current base rate directly on the Bank of England website, via GOV.UK’s late payment guidance, or by running a figure through the OSBC interest calculator. The OSBC tool updates automatically and is the quickest way to confirm the live rate before issuing a demand.
How to calculate statutory interest and the fixed compensation you can claim
Statutory interest is simple interest, not compound. That distinction matters for your accounts: you do not roll unpaid interest back into the principal each period.
The GOV.UK calculation guidance sets out the formula:
Interest = Principal × Annual rate × Days overdue ÷ 365
Worked example (illustrative — use the current Bank of England base rate):
Assume a base rate and add the statutory 8% uplift to determine the total statutory rate.
For example, with an invoice value, statutory annual rate, and days overdue, compute interest using the formula principal × annual rate × days ÷ 365.
Beyond interest, Part I of the Act entitles you to fixed-sum compensation:
The Act provides fixed compensation amounts that vary according to the size of the debt.
Where your actual recovery costs exceed the fixed sum, you may claim the reasonable excess on top.
Issue this as a fresh invoice, not an amendment to the original. GOV.UK guidance is explicit on this point: a separate document preserves a clean audit trail and avoids complicating the original invoice in your accounts.
Step-by-step: from overdue invoice to enforcement
- Calculate interest and compensation using the formula above and confirm the figure with the OSBC calculator.
- Instruct a collection agency at any stage where litigation cost outweighs likely recovery, the debtor is disputing liability, or the debt has cross-border elements. Debtrecoveryhub’s debt collection service matches your case to a vetted agency based on debt type, age, and amount.
Decision points: accept a partial settlement only if the debtor’s financial position makes full recovery unlikely. Pursue interest alone only when the principal has been paid but the delay was significant. Escalate to legal action when correspondence has been ignored for more than 30 days.
Pro Tip: Issue the interest invoice on the same day you send the formal demand. A single, well-documented package — original invoice, interest invoice, compensation claim, and demand letter — signals you know your rights and are ready to enforce them. Practitioners consistently find this accelerates payment.
Practical wording, accounting treatment, and handling disputes
Invoice wording that cites the Act clearly:
Keep the wording factual. Avoid threatening language; the Act does the work.
Accounting treatment: record statutory interest and fixed compensation as separate receivable line items, distinct from the trade receivable for the original invoice. Recognise interest income only when recovery is probable, consistent with your accounting policy on contingent income. This keeps your management accounts clean and avoids overstating revenue on debts that may not be collected.
Preserving the relevant day in disputes: document the date of delivery or completion, the date the invoice or notice of amount was sent, and any acceptance or verification procedure dates. If a debtor claims the relevant day has not yet arrived, your correspondence trail is your defence.
Pro Tip: Add a standard “late payment interest review” step to your overdue invoice workflow at the 30-day mark. A consistent internal process means calculations are never done ad hoc, and every finance team member applies the same rate and formula.
Recovery routes when the debtor still refuses to pay
When a debtor ignores demands and a court claim feels disproportionate, you have several routes to recover your debts.
Continued negotiation or mediation works best for ongoing trading relationships where preserving goodwill matters. A letter before action, drafted carefully and citing specific statutory figures, often prompts payment without litigation. For debts above £10,000, the County Court is the appropriate forum; for smaller sums, the small claims track is faster and cheaper.
The cost-benefit calculation matters. Court fees, time, and the risk of a disputed claim can erode the value of a small debt quickly. A professional collection agency typically works on a no-collection, no-fee basis, which shifts the risk away from you entirely.
When to instruct an agency: debts older than 60 days with no payment plan in place, amounts where litigation costs would consume a significant share of the recovery, debtors who have gone silent, or any cross-border element that complicates jurisdiction. For the last of these, Debtrecoveryhub’s international debt recovery guidance explains when specialist agencies are needed.
Provide a collection partner with: the original contract or purchase order, all invoices (including the interest invoice), a full correspondence log, and any acceptance or verification records. The more complete the file, the faster an agency can act.
Key takeaways
Statutory interest under the Late Payment Act is simple interest at Bank of England base rate plus 8%, and suppliers can claim it alongside fixed compensation from the day after payment was due.
| Point | Details |
|---|---|
| The statutory rate formula | Bank of England base rate plus 8% p.a., set by the Rate of Interest Order 1998; use the rate in force on the relevant day. |
| Simple interest only | Calculate as principal × annual rate × days ÷ 365; compound interest is not recoverable under the Act. |
| Fixed compensation entitlement | Claim £40, £70, or £100 depending on debt size, plus reasonable excess recovery costs where applicable. |
| Issue a fresh invoice | A separate interest invoice preserves a clean audit trail and is the GOV.UK-recommended approach. |
| Debtrecoveryhub for escalation | When internal recovery stalls, Debtrecoveryhub matches your case to a vetted collection agency based on debt type, age, and amount. |
Why most businesses leave statutory interest on the table
The Late Payment Act has been on the statute book since 1998. Yet the majority of UK businesses with overdue invoices never claim the interest or compensation they are legally entitled to. That is not ignorance of the law so much as a process failure: no one in the finance team has been assigned the task, the calculation feels fiddly, and there is a vague worry about damaging the client relationship.
The relationship concern is usually misplaced. A factual, professionally worded interest invoice does not read as aggressive; it reads as competent. In practice, citing statutory interest in a demand letter often accelerates payment precisely because it signals the creditor knows their rights. Debtors who were hoping for a quiet write-off recalibrate quickly when they see a correctly calculated interest claim.
The calculation concern is also overstated. The OSBC calculator takes two minutes. The harder discipline is building the process so it happens consistently, not just when someone remembers.
Where the Act genuinely falls short is on enforcement. Calculating and claiming interest is one thing; collecting it from a debtor who has decided not to pay is another. That is where professional recovery adds real value, particularly for debts over 60 days old or where the debtor has gone silent.
Debtrecoveryhub: matched to the right agency for your debt
When statutory interest demands and letters before action have not moved the needle, the next step is professional recovery. Debtrecoveryhub connects UK businesses with vetted debt collection agencies selected specifically for your debt type, amount, age, and location — not a generic referral, but a matched introduction based on the details of your case.
Submit your case details through the platform and Debtrecoveryhub identifies the agencies best placed to recover your debt, including the statutory interest and compensation you are owed. The process is straightforward: provide your invoice history, correspondence, and contract terms, and the platform does the matching. Most agencies on the panel work on a no-collection, no-fee basis, so you carry no upfront cost.
Start your debt recovery case with Debtrecoveryhub today and get matched with a specialist agency that knows how to recover what you are legally owed.
Useful sources
The following official resources are the authoritative references for statutory late payment interest in the UK:
- Late Payment of Commercial Debts (Interest) Act 1998
- The Late Payment of Commercial Debts (Rate of Interest) Order 1998
- Late Payment of Commercial Debts (Interest) Act 1998 — section 4
- Late commercial payments: charging interest and debt recovery: Interest on late commercial payments – GOV.UK
- Part I — Compensation arising out of late payment (Late Payment Act provisions)
- Interest Calculator – Small Business Commissioner
This article provides general information about UK statutory late payment interest and is not legal or financial advice. Confirm current rates and rules with the primary sources above or a qualified professional.
FAQ
What is the current late payment act interest rate?
The statutory rate is the Bank of England base rate plus 8% per annum. Because the base rate changes, check the current figure on the Bank of England website or use the OSBC interest calculator before issuing a claim.
Does statutory interest apply to all business invoices?
It applies to qualifying commercial debts between businesses, and to certain public authority contracts. It does not apply to consumer transactions or contracts where the parties have agreed a contractual interest rate that provides a substantial remedy for late payment.
Can I claim both statutory interest and fixed compensation?
Yes. The Late Payment of Commercial Debts (Interest) Act 1998 entitles you to both: simple interest at base rate plus 8%, and fixed-sum compensation of £40, £70, or £100 depending on the debt size, plus reasonable excess recovery costs where your actual costs exceed the fixed sum.
When does statutory interest start to run?
Interest runs from the day after the relevant day: either the agreed payment date, or the end of the default 30-day period (or up to 60 days for non-public-authority contracts where extended terms have been agreed and are not grossly unfair).
What if my debtor still refuses to pay after I claim statutory interest?
Escalate through a letter before action, then a court claim (small claims for debts up to £10,000, County Court for larger amounts), or instruct a professional collection agency. Debtrecoveryhub matches UK businesses with vetted agencies based on the specifics of each case.
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