If you are a business waiting to be paid by another business, the law is on your side. The Late Payment of Commercial Debts (Interest) Act 1998, as amended, gives you a statutory right to interest and compensation when a commercial customer pays late. Many suppliers never claim it. Here is what you are entitled to.

When does it apply?

It applies to commercial transactions for goods or services, business-to-business and public sector. It does not apply to consumer debts. If no payment date is agreed in the contract, payment is due 30 days after the later of delivery or the invoice date.

How long can payment terms be?

  • Agreed terms between businesses should not exceed 60 days, unless a longer period is expressly agreed and is not "grossly unfair" to the supplier.
  • Public-sector bodies must pay within 30 days.

Statutory interest

Once a debt is overdue you can charge statutory interest at 8 per cent above the Bank of England base rate. It runs from the day after payment was due until the day you are paid. You do not need it written into your contract; it is a right granted by the Act.

Fixed compensation for recovery costs

On top of interest, you can claim a fixed sum for each overdue invoice to cover the cost of chasing it:

  • Debt under £1,000: £40
  • Debt of £1,000 to £9,999.99: £70
  • Debt of £10,000 or more: £100

If your reasonable recovery costs, for example debt-collection or legal fees, exceed the fixed sum, you can claim the difference as well.

Can a customer contract out of it?

Largely no. A contract term that removes or waters down your right to statutory interest is void unless it provides a substantial alternative remedy for late payment. A clause that simply says "no interest is payable" will not stand up.

Other protections worth knowing

  • Payment practices reporting: large UK companies must publicly report how quickly they pay suppliers, so you can check a customer's record before taking them on.
  • The Prompt Payment Code: a voluntary standard whose signatories commit to fair payment terms.
  • Construction payments: if you work in construction, the Construction Act adds its own payment rules, see the Construction Act explained.

Putting it to use

You do not have to fall out with a customer to use these rights; often, simply stating the interest and compensation due is enough to get an invoice paid. To see what a specific late invoice is worth, try our late-payment interest calculator.

This article is general information, not legal advice. For a specific dispute, take professional advice.